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.
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