Oil Advances as Jobs Growth Adds Strong Demand to Supply Strains

(Bloomberg) -- Oil eked out a gain as a forecast-topping U.S. jobs report signaled a strong domestic economy to go along with the supply disruptions squeezing global crude markets.

Futures in New York rose 0.2 percent on Friday, after unemployment unexpectedly fell to a 49-year low in the world's biggest economy, with cooler-than-projected wage gains. Crude nonetheless recorded a loss for the week as investors digested a big surge in American production.

“The demand picture has been one possible weak leg for petroleum and this helps to alleviate that concern,” said Kyle Cooper, a consultant at Ion Energy Group in Houston. “You've got minimal-to-moderate inflation with solid growth – that's your Goldilocks economy.”

West Texas Intermediate crude for June delivery climbed 13 cents to $61.94 a barrel at the close of trading on the New York Mercantile Exchange. It finished the week down 2.2 percent, the second straight weekly decline after seven straight gains.

Brent for July settlement rose 10 cents to $70.85 a barrel on the London-based ICE Futures Europe exchange. It was down 1.8 percent for the week.

The U.S. hiring numbers accomplished what an attempted coup in Venezuela, tougher sanctions on Iran and disrupted flows from Russia have failed to do in recent days: push oil markets into positive territory.

Crude's indifference to the array of threats reflected that world markets appear comfortably supplied for the time being, largely thanks to the ongoing surge in American production, which hit a new record last week. Prices have also been capped by worries about the global economy, with manufacturing data from China and the U.S. showing that growth remains fragile.

Brent increased 27 percent in the first quarter, its strongest in a decade, on production cutbacks by OPEC and its partners, but lately the rally has lost steam.

“It shows that in an age of OPEC-led production restraint and geopolitical concerns, surging U.S oil output is more than capable of stunting upward pricing pressures,” said Stephen Brennock, an analyst at PVM Oil Associates Ltd. in London.

Venezuela, Iran

There's been no shortage of catalysts to give the market a renewed boost.

In OPEC member Venezuela, opposition leader Juan Guaido launched an uprising against President Nicolas Maduro on April 30 with the backing of the U.S. government. The country's oil output has already plummeted to the lowest in decades because of an economic meltdown, and is at risk of collapsing entirely if the political standoff escalates.

Fellow OPEC nation Iran suffered another blow on Thursday as the U.S. tightened sanctions, ending a system of waivers that had allowed several countries to continue purchasing Iranian crude.

The crackdown could slash Iran's exports by as much as 900,000 barrels a day, according to Goldman Sachs Group Inc., or roughly two-thirds. Saudi Arabia, the world's biggest oil exporter, has given mixed signals on how quickly it will heed President Donald Trump's call to fill the resulting supply gap.

Libya Unrest

The political situation in a third OPEC producer, Libya, remains fraught as militia commander Khalifa Haftar keeps up his campaign to wrest the capital, Tripoli, from government forces.

In addition to these impending and potential supply risks, there has also been interruption to current oil flows.

Supplies from Russia to eastern Europe along the country's biggest export pipeline have been disrupted since April 21 as a result of chemical contamination. Restoring normal flows may take months, a spokeswoman for Belarusian state petrochemical company Belneftekhim said April 30, though Russia's Deputy Prime Minister Dmitry Kozak gave a more upbeat estimate of two weeks.

Despite the threats to supply, oil prices have continued to weaken, with U.S. benchmark futures now heading for their first back-to-back weekly decline of the year.

There's a sustained gusher of new oil flooding in from the U.S., as the nation's shale boom continues. Production reached a record 12.3 million barrels a day last week, and crude stockpiles swelled by 9.93 million barrels, according to the Energy Information Administration. That's more than four times what analysts had anticipated.

Despite Friday's jobs report, there are also persistent concerns about the demand outlook amid slowing global economic growth and the drag from the unresolved trade dispute between the U.S. and China. Manufacturing data from the two countries, the world's top oil consumers, underscored the fragility.

“Oil's rally was mainly driven by the U.S. sanctions on Iran and OPEC's output cuts, which have already happened,” said Kim Kwangrae, a commodities analyst at Samsung Futures Inc. in Seoul. “But further gains in American shale production and the possibility of OPEC+ ending its curbs will likely drag prices down from here, and they could go as low as the high 50s.”

--With assistance from James Thornhill.

To contact the reporters on this story: Alex Nussbaum in New York at anussbaum1@bloomberg.net;Grant Smith in London at gsmith52@bloomberg.net

To contact the editors responsible for this story: Simon Casey at scasey4@bloomberg.net, Catherine Traywick, Carlos Caminada

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