Oil Rises for First Time in Six Days as U.S. Unemployment Rate Declines

Published: Feb 03, 2012

By Moming Zhou and Mark Shenk - Feb 3, 2012

Oil gained for the first time in six days, paring a weekly loss, after the U.S. jobless rate fell to the lowest level in three years.

Oil climbed as much as 1.2 percent after the Labor Department said the unemployment rate dropped to 8.3 percent in January, the lowest level since February 2009. Nonfarm payrolls increased 243,000, the most since April. Oil dropped this week as inventories rose and demand weakened.

“It’s a really strong jobs report and not surprisingly it should give the market a boost,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant. “It showed that the U.S. economy is recovering.”

Crude for March delivery gained 86 cents, or 0.9 percent, to $97.22 a barrel at 10:35 a.m. on the New York Mercantile Exchange. The contract fell 1.3 percent yesterday to $96.36, the lowest settlement since Dec. 19. Prices are down 2.4 percent this week.

Brent oil for March settlement climbed $1.47, or 1.3 percent, to $113.54 a barrel on the ICE Futures Europe exchange. Brent’s premium to Nymex’s West Texas Intermediate widened to $16.32.

January’s payroll increase exceeded all forecasts in a Bloomberg News survey. The median projection in the survey called for an increase of 140,000. Estimates of the 89 economists ranged from gains of 95,000 to 225,000.

The unemployment rate, derived from a separate survey of households, was forecast to hold at 8.5 percent, according to the survey median.
‘Markets Exploded’

The jump in employment was broad-based, including manufacturing, construction, temporary help agencies, restaurants and retailers.

“All of the markets exploded on the very bullish unemployment number,” said Tom Bentz, a director with BNP Paribas Prime Brokerage Inc. in New York. “Any sign of an improving U.S. economy is positive for oil demand picture.”

Oil also moved higher after U.S. Defense Secretary Leon Panetta declined to comment on a report by a Washington Post columnist yesterday that Panetta believes there is a strong likelihood that Israel will strike Iran by the end of June, before Iran enters a “zone of immunity.”

“The market found support overnight on the headlines that pointed to the possibility Israel will attack Iran this spring,” said Bentz.

Iran has said it may close the Strait of Hormuz, the transit point for about a fifth of global crude, after the European Union announced Jan. 23 that it will implement an oil embargo starting July 1 to pressure the Islamic republic over its nuclear program.
Rising Inventories

Nymex futures fell the first four days of the week on signs of surging stockpiles. Total inventories climbed to a 13-week high of 338.9 million barrels, and stockpiles at the Cushing (DOESCROK), Oklahoma, delivery point for the New York contract reached a six-week high of 30.1 million.

The current oil inventory level can support 23.4 days of refinery use, the most since July 1, according to the Energy Department.

“The inventory numbers are weighing on the market,” said Rich Ilczyszyn, chief market strategist and founder of Iitrader.com in Chicago. “I don’t want to say that we have a glut, but we do have plenty of stocks.”

The supply increase has pushed the March contract to a discount of more than $3 a barrel to December futures from $1.38 on Jan. 27.
Brent Premium Widens

Rising Cushing inventories also helped widen Brent’s premium over WTI, which has almost doubled this year, said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.

“Cushing stocks are increasing and there won’t be new pipelines until later this year,” McGillian said. He added that Asian demand is boosting Brent.

Crude prices may fall next week, a Bloomberg News survey showed. Fourteen of 34 analysts, or 41 percent, forecast oil will drop through Feb. 10. Twelve respondents, or 35 percent, predicted prices will increase and eight estimated there will be little change.

Total petroleum demand in the U.S., the biggest oil consumer, fell to 17.7 million barrels a day last week, the lowest level since May 1999, according to the Energy Department. Gasoline consumption decreased to 7.97 million barrels a day, the lowest level since September 2001.

To contact the reporter on this story: Moming Zhou in New York at mzhou29@bloomberg.net