Crude Oil Weakens After Payrolls on Renewed Growth Fears

By Peter Nurse   

Investing.com -- Oil prices retreated Friday after a blockbuster July U.S. jobs report raised expectations of continued aggressive monetary tightening by the Federal Reserve, potentially weighing on growth in the world’s largest consumer of crude.

By 9:25 AM ET (1325 GMT), U.S. crude futures traded 1.5% lower at $87.25 a barrel, while the Brent contract fell .21% to $93.02.

U.S. Gasoline RBOB Futures were down 0.7% at $2.7729 a gallon.

U.S. job growth unexpectedly accelerated in July, with nonfarm payrolls rising by 528,000 during the month versus the revised figure of 398,000 in June.

Analysts had expected the reading to slide to 250,000 as soaring price inflation and surging interest rates were seen hitting labor demand in the world's largest economy.

Strong employment trends are encouraging signs for central bankers, and something the Federal Reserve is closely watching as it moves into its next meeting in September.

Analysts in recent days have been weighing the odds that the Fed will start to ease off the aggressive 0.75-point hikes it has made in June and July given the latest GDP figures pointed to the U.S. economy entering a technical recession, but this release suggests that the U.S. central bank will continue its path of severe tightening.

The sharp rise in payrolls has also translated into a jump in the U.S. dollar, with the U.S. dollar index climbing over 1% to 106.670.

This also weighs on the oil market as a strong buck makes the commodity, which is priced in dollars, more expensive for customers in foreign countries.

The oil market had already looked weak before the jobs report, with crude prices falling to a new seven-month low overnight as the Bank of England’s forecast of a prolonged U.K. recession triggered a broader risk-off moment in global markets, specifically leading to the apparent capitulation of numerous oil bulls. 

CFTC data, which run through Tuesday, may shed light on how positioning was going into that selloff when they are released later in the session.

Still, while the oil market may have given up all the gains made in the wake of Russia’s invasion of Ukraine, it’s important to point out that global supply remains very tight.

The Organization of Petroleum Exporting Countries and allies, known as OPEC+, could only agree to add 100,000 barrels a day in September at Wednesday’s meeting, and there remain doubts whether many of the group can actually follow through with their promises.

Additionally, while talks are due to resume on reviving the Iran nuclear deal that could lead to sanctions being lifted on the Islamic Republic, allowing it to resume exporting oil onto the global market, actual progress remains very hard to agree upon.