Oil Futures End Down

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled lower this afternoon after a bearish nonfarm payroll report in the United States spurred a rebound in the U.S. dollar and a sustained selloff in oil and other asset classes including equities on Wall Street.

The Labor Department's report showing hiring decelerated in January was a sign of a slowing U.S. economy, which points to weak demand for energy that offset data showing a steep decline in the U.S. oil rig count, which on its own suggests a drop in domestic crude production.

"The jobs miss raised concerns the economy is falling and oil companies are laying off workers," said analyst Phil Flynn at Price Futures Group in Chicago. "People now see the drop in rig-count as an indicator of job layoffs rather than a decline in production."

He added, "The oil price contango will widen because the front-end of the [futures] curve is getting hurt while the back-end of the curve is staying solid."

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At settlement, NYMEX March WTI crude futures were 83 cents lower at $30.89 per barrel (bbl), off a two-day low of $30.63 while posting a weekly loss of $2.74 bbl.

April Brent oil futures on the IntercontinentalExchange eased 40 cents to a $34.06 bbl gallon settlement, off a two-day low of $33.81 and down 68 cents for the week.

In products trade, NYMEX March ULSD futures contract tumbled 2.15 cents to a $1.0590 gallon settlement, near a two-day low of $1.0542 while up by a fraction of a penny for the week. NYMEX March RBOB futures settled 3.57 cents lower at $0.9927 gallon, after posting a two-day low of $0.9869 while down 11.04 cents or 10.0% for the week.

On Wall Street, stock indices were down, led by a 3% fall for Nasdaq while the dollar bounced off a better-than three-month low, rising on the back of the weak payroll report. The stronger dollar is bearish for oil prices.

While most people were disappointed, some analysts said the dollar's response suggested investors considered the January jobs report not bad enough to warrant delaying a hike in federal funds rate by the Federal Reserve.

The report showed 151,000 jobs were added to the economy in January, less than an expected 190,000 and well below a downwardly revised 262,000 job gains for December. On the other hand, the report showed the unemployment rate down from 5.0% to 4.9% in January, the lowest in eight years, and the labor participation rate ticked up 0.1% to 62.7%. Wage gains were up 0.5% for January and 2.5% year over year.

Still, Flynn said the jobs report highlighted a weakening economy, which started to slow in the final months of 2015. It followed last week's data that showed the annualized economic growth rate slowed to a less-than-expected 0.7% during the fourth quarter 2015. Weak U.S. and Chinese economic growth point to weaker energy demand, accentuating a global glut in oil supply.

Meantime, Baker Hughes reported the total rig count in the United States plummeted 48 to 571 during the week-ended today, the lowest count since July 1999. Data shows rigs in operation fell 885 from a year ago. There were 467 rigs drilling for oil, sliding 31 on the week, marking the fewest number of rigs drilling for oil in the U.S. since March 2010.

The U.S. Energy Information Administration midweek reported a 7.8 million bbl domestic crude oil stock build for the week-ended Jan. 29. Crude stocks are 22% higher than a year ago.

George Orwel can be reached at george.orwel@dtn.com

(BAS)

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