Oil Prices Slump on Upbeat October Jobs Data
Oil prices erased most of their early gains after stronger-than-expected gains in U.S. employment sent the dollar to new highs and raised expectations for interest-rate increases.
Light, sweet crude for November delivery recently traded down 7 cents, or 0.2%, to $45.13 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, traded up 16 cents, or 0.3%, to $48.14 a barrel on ICE Futures Europe.
U.S. prices fell more than 1% in the minutes immediately after new data showed that U.S. nonfarm payrolls rose a seasonally adjusted 271,000 in October, nearly 50% more than expected. While the stronger-than-expected economy should raise expectations for gasoline demand, it also may pave the way for the Federal Reserve to raise interest rates in December, which can cause a short-term selloff in oil, analysts have said.
The Wall Street Journal Dollar Index, which gauges the buck against a basket of 16 currencies, was recently at 90.40, its highest level since December 2002, amid gains against the euro, yen and other currencies. Dollar-denominated commodities that trade internationally, including oil, tend to fall in price to offset a rising dollar, so stable interest rates and a stable dollar should help oil prices hold, too.
"This would certainly put a December rate increase at the forefront," said Andy Lipow, president of Lipow Oil Associates in Houston. "That would keep the dollar strong and those who would want to sell oil against dollar strength will do so."
Fuel prices have not retreated as sharply as crude. Gasoline futures are still up 1.2% for the day at $1.3769 a gallon. Diesel futures are up 1% to $1.5017 a gallon.
It could until next year before the economic growth and rising demand for gasoline take center stage in the oil market. Oil prices have been stuck in a tight range below $50 a barrel in recent weeks as the global oversupply of crude, which has battered prices since last year, shows few signs of abating.
"Throw in the likelihood of a stronger dollar as a result of a Federal Reserve interest rate increase in December and the first half of next year looks like a distinctly dangerous period for oil bulls," said David Hufton of PVM brokerage.
Markets are also looking for clues about another meeting in December--that of the Organization of the Petroleum Exporting Countries, the 12-nation oil cartel.
Senior OPEC officials were quoted in recent days saying the bloc is unlikely to waver from its no-cut policy unless oil producers outside the bloc, such as Russia, were also in sync with the plan.
"OPEC states that it will likely not cut output at the December meeting unless non-OPEC oil producers follow suit," said Michael Poulsen, oil analyst at Global Risk Management.
"In an oversupplied market, oil exporters are fighting for global market share and the majority of the countries are highly dependent on oil revenue to cover public household expenses."
Investors on Friday are also awaiting data which is expected to show another decrease in the number of rigs drilling for oil in the U.S.
Oil services firm Baker Hughes Inc. will publish the latest rig count, which many see as proxy for activity in the industry. Last week, count dropped by 16 to 578, the ninth consecutive week of declines.
The number of rigs has fallen sharply since oil prices started falling last year, and the number of operational rigs has fallen 64% since a peak of 1,609 last October.
Nymex reformulated gasoline blendstock--the benchmark gasoline contract--rose 1.6% to $1.38 a gallon. ICE gas oil changed hands at $457.75 a metric ton, up $2.25 from the previous settlement.
Jenny W. Hsu and Ira Iosebashvili contributed to this article.