Home Investing News Oil prices retreat from 5-month highs after red-hot US payrolls release

Oil prices retreat from 5-month highs after red-hot US payrolls release


Investing.com– Oil prices edged marginally higher Friday, below the fresh five-month highs seen earlier in the session after robust U.S. labor data weighed on expectations of early Federal Reserve interest rate cuts.

At 10:05 ET (14:05 GMT), West Texas Intermediate crude futures traded largely flat at $86.58 a barrel, while Brent oil futures expiring in June rose 0.2% to $90.86 a barrel, after earlier reaching levels last seen in mid-October.

Red-hot March nonfarm payrolls

Data released earlier Friday showed that nonfarm payrolls increased by 303,000 jobs in March, much more than the expected 212,000 gain.

This red hot report has undermined hopes that the Federal Reserve will start cutting interest rates as soon as June, a cutting cycle that would likely increase economic activity and thus demand for crude in the world’s largest economy.  

That said, the crude benchmarks are still on track for their best week in two months on the prospect of worsening geopolitical conditions in the Middle East, especially amid increased saber rattling between Israel and Iran.

A broader outbreak of war in the Middle East potentially heralds more supply disruptions for oil, and could further tighten markets in the coming months. Expectations of tight markets were furthered by the Organization of Petroleum Exporting Countries and allies maintaining its current pace of production cuts.

On the demand front, improving economic readings from top importer China saw traders turn more optimistic over stronger oil imports in the country this year.

Oil prices head for bumper week on prospect of Israel-Iran war 

Brent and WTI futures were set to gain around 4% this week- their best performance since early-February.

Prices were boosted chiefly by the prospect of Iran joining the Israel-Hamas war, after Tehran threatened retaliation for what it viewed as an Israeli strike on an Iranian embassy in Syria.

These threats drew a sharp rebuke from Israeli Prime Minister Benjamin Netanyahu. U.S. calls for a ceasefire in Gaza also appeared to have gone unheeded. 

Worsening geopolitical conditions in the Middle East stand to potentially disrupt crude production in the oil-rich region, especially if major producer Iran becomes embroiled in a conflict. 

Tighter supply outlook also buoys crude 

Crude was also buoyed by the prospect of tighter global supplies in the coming months, as major producer Russia cut output in the wake of Ukrainian strikes on several key refineries. 

This cut, coupled with the OPEC+ maintaining its current pace of production cuts at a meeting earlier this week, pushed up expectations of lower oil supplies. 

While the prospect of tighter markets was somewhat offset by data showing U.S. production remained at record highs last week, a bigger-than-expected draw in U.S. gasoline inventories indicated that demand in the world’s largest fuel consumer was also picking up.

(Ambar Warrick contributed to this article.)

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