Oil dips on jobs data; Brent/U.S. spread at $22

NEW YORK Fri Jul 8, 2011 4:41pm EDT

NEW YORK (Reuters) - Oil ended a strong week on a downbeat note on Friday as a dismal U.S. jobs report cast a pall on the economic outlook.

Benchmark Brent crude pared losses by mid-afternoon, closing near flat on the day as news of reduced North Sea production helped drive prices up nearly 6 percent this week. Brent's premium to U.S. crude pushed above $22 a barrel, within $1 of its all-time record three weeks ago.

Trading was volatile while volume picked up from recent weak levels, with raw materials faring better than stock markets after news that U.S. jobs growth ground to a near-halt in June. Nonfarm payrolls rose only 18,000, the weakest reading since September and well below expectations.

"The employment data has weighed mightily on oil prices. Employment trends are key to future demand, and this is now two months of poor data," said John Kilduff, partner at hedge fund Again Capital LLC in New York.

"The (market's) only supportive feature is further declines in North Sea loadings. These outages coupled with Libya and Nigeria issues are increasingly meaningful," he said.

Brent futures for August fell 26 cents to settle at $118.33 a barrel, off their $119.87 peak reached ahead of the U.S. jobs report but well above the $116.88 low. Brent posted a second straight weekly gain, rising 5.87 percent, after gaining 6.33 percent the previous week.

A second week of strong gains has pushed prices well above the level prior to the release of global emergency stockpiles as traders bet the extra 60 million barrels of oil would be insufficient to stop markets tightening later this year.

U.S. crude fell $2.47 to settle at $96.20 a barrel, below front-month crude's 30-day moving average of $96.84, but off its $95.60 intraday low. For the week, U.S. crude rose 1.33 percent, also a second straight weekly gain.

Money managers raised their net-long U.S. crude futures and options positions in the week to Tuesday, the Commodity Futures Trading Commision said on Friday.

After lagging early, U.S. crude trading volumes outpaced Brent's, though Brent surpassed its 30-day average, while U.S. volumes were on track to fall just short.

"Brent seems to have more speculative interest in it, along with the North Sea problems and missing African barrels, and the demand in Asia for similar barrels," said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.

TIGHT GLOBAL SUPPLY

Output from the North Sea Forties oil stream will slip to a two-year low in August, further reducing supply of the crude that helps to set the Brent benchmark.

Brent's strength indicates the need for sweet crude like Libya's, even though "an expected increase in (U.S.) Gulf Coast supply should theoretically reroute some African light sweet crude toward the higher-priced European market", Jim Ritterbusch, president of Ritterbusch & Associates, said in a research note.

Thursday's government inventory report showed U.S. crude and refined product stocks fell last week.

Oil prices have rebounded from four-month lows following the International Energy Agency's (IEA) surprise announcement on June 23 that member nations would release 60 million barrels of oil reserves. The IEA said it would consider later this month whether to release more reserves.

JP Morgan said in a report the timing of the IEA release threw a spotlight on tightness in global oil supply.

"Politics aside, the main reason we can see for the precise timing of the IEA stock release was that it coincided with clear indications from tanker traffic data that OPEC output would fall short of prior pledges," the bank said in a report on Thursday.

"As such, it is difficult to conclude anything except that there is little or no spare capacity in the oil market."

(Additional reporting by Gene Ramos in New York, Simon Falush and Stephen Mangan in London and Francis Kan in Singapore; Editing by Dale Hudson and David Gregorio)

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Comments (4)
wigglwagon wrote:
“U.S. employment growth ground to a halt in June, with employers hiring the fewest number of workers in nine months, dampening hopes the economy was on track for a strong recovery.”

It is truly amazing that our over educated, over advised, self absorbed political leaders do not have a clue as to what drives economic prosperity. America went broke in the 20′s because the our business leaders were too greedy to pay their workers a living wage. Consequently, business did not have enough customers for America to truly prosper. In the 30′s, Congress woke up and started enacting labor laws and immigration laws that protected workers and allowed them to demand a fair share of the profits. After that, with a well paid work force with money to spend, business and America prospered.
For the last 30-40 years, business has been using illegal immigration and free trade and deregulation to drive down wages and circumvent those same labor laws such as minimum wage, workers’ comp, etc. Consequently, with low wage customers, business does not thrive. America does not thrive. Now we have 30 million people looking for work and our government does not have enough income to pay the bills. When America was at the height of it’s prosperity, nearly 40% of the workforce was union. Today, business and jealous workers have gotten it their way and only about 6% of the workforce is union. It is really simple. With those smaller pay checks, businesses have fewer customers and consequently, fewer employees.

Jul 08, 2011 12:03pm EDT  --  Report as abuse
kritik1 wrote:
Every bit of what wigglewagon wrote is so truthfully pure and true. Economic activity of a country is not dependent on one factor; the claims of the not-so-wise political pundits, who falsely advocate that where an x number of additional profits generate x additional revenues for the government and therefore the government should give tax breaks, and even additional subsidies and/or, reduced tax rates for both the rich and the business entities. The economy is dependent on many factors, profitable investments, non-profitable ventures that generate incentives to contribute towards the nations economy, savings, spending, and lastly the efficient regulations (not just deregulations), the regulations that monitor growth and improve regulations on a constant pattern. This then will work as an efficient tool to regulate for the welfare of the nation. When certain laws are dropped and others created for efficiency, it will prove that both regulation-deregulation is workable. Besides all the economic activity the infrastructure needs constant revision. The mobile gadgets and broadband is one example that needs attention. Finland provides mandatory broadband to its citizens. South Korea has the fastest broadband to keep pace with its tremendous economic growth. The Japanese economy is dependent heavily on small businesses that provide supply side for the large industry, which indirectly is successful because of the public transportation infrastructure. Scandinavian countries provide incentives to both the businesses and its citizen to contribute towards the national economy and the national health.

Jul 08, 2011 2:26pm EDT  --  Report as abuse
walter17 wrote:
tomorrow oil will rise again, then it will go down, then rise, then go down. . .

Jul 08, 2011 2:34pm EDT  --  Report as abuse
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