Oil futures jumped Thursday, as traders looked past a smaller-than-expected draw in U.S. oil inventories to focus on a pair of upbeat readings on U.S. employment levels.
Light, sweet crude for August delivery settled up $2.02, or 2.1%, to $98.67 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange doubled that gain, settling up $4.97, or 4.4%, to $118.59 a barrel.
Futures surged after giant Automatic Data Processing Inc. (ADP) said the U.S. private sector added 157,000 jobs last month, above the 95,000 that had been expected by economists polled by Dow Jones Newswires. That report was quickly followed by a reading from the Labor Department showing new claims for unemployment benefits fell last week for the first time in three weeks. The figure fell 14,000 to a seasonally adjusted 418,000. Economists had expected a drop of 3,000.
Crude market participants closely watch U.S. employment data, which correlate closely with demand for oil, gasoline and other refined products.
"Both domestically and globally ... the economies are in better shape than we're led to believe," said Jay Levine, president of Energy LLC, a Portland, Maine, brokerage and consultancy. "The oil market in general has been looking better."
|Jay Levine, president of Energy LLC,|
Following the upbeat reports, several economists raised their forecasts for the change in June non-farm payrolls, due Friday from the Bureau of Labor Statistics.
Thursday's employment data sent Nymex crude rallying as high as $99.42 in intraday trading, the contract's highest level since June 15. Traders pared its gains, however, after the Department of Energy posted a smaller-than-expected decline in U.S. oil inventories last week.
The Department of Energy said oil inventories fell 900,000 barrels, less than the 2.4-million-barrel decline forecast by analysts surveyed by Dow Jones Newswires.
U.S. crude inventories have fallen for five straight weeks, a sign that demand remains strong from refiners. Inventories, however, are still above last year's levels amid the backdrop of a weak economic recovery.
The DOE said gasoline inventories last week fell 600,000 barrels. Distillate stocks, including heating oil and diesel, declined 200,000 barrels. Analysts had expected gasoline and distillate stockpiles to climb 900,000 and 200,000 barrels, respectively.
The report was delayed by a day due to the Independence Day holiday Monday.
Gains in Brent, the European benchmark, sharply outpaced the Nymex contract. Analysts attributed Brent's steep gains to several factors, including a decision by the European Central Bank to continue lending against Portuguese debt.
They also pointed to a technical explanation: a $2 "continuation gap" around $115 a barrel that the front-month contract skipped when July futures expired in mid-June. Technical traders quickly filled the gap by boosting the price of August futures when they approached $115 again, sending the front-month Brent contract surging.
"The market always goes back to fill those gaps," said Tom Bentz, director at BNP Paribas Commodity Futures. "Once the market punched through it, it exploded another dollar like nothing."
Refined product futures largely tracked the Brent contract. Front-month August reformulated gasoline blendstock, or RBOB, settled up 12.94 cents, or 4.3%, to $3.1270 a gallon. August heating oil settled up 13.87 cents, or 4.7%, to $3.1020 a gallon.