West Texas Intermediate crude rose to a two-week high on speculation that demand for fuel will climb after U.S. employment gained more than forecast.
Futures capped a 4.4 percent weekly increase after the Labor Department reported payrolls advanced 175,000 in May, beating the 163,000 median forecast of economists surveyed by Bloomberg. The unemployment rate climbed to 7.6 percent from 7.5 percent in April as more Americans entered the labor force. Oil also gained with U.S. equities.
“We finally got some decent economic news,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “We have an upside surprise and the market is taking off. Given the momentum and strength that we are seeing generally, we can make a run to $100.”
WTI for July delivery advanced $1.27, or 1.3 percent, to close at $96.03 a barrel on the New York Mercantile Exchange, the highest settlement since May 21. The volume of all futures traded was 52 percent above the 100-day average for the time of day at 2:34 p.m. The weekly gain was the first since May 10.
Brent for July settlement rose 95 cents, or 0.9 percent, to settle at $104.56 a barrel on the London-based ICE Futures Europe exchange. Volume was 13 percent above the 100-day average. Brent’s premium to WTI shrank 32 cents to $8.53.
The payroll increase in May followed a revised 149,000 increase in April that was smaller than first estimated. Retailers added jobs in May, the report showed.
“The jobs report is better than expectations and it’s a good sign for fuel demand,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “It’s a boost for the market.”
The household survey, used to calculate the unemployment rate, showed a 420,000 increase in the size of the labor force, pushing up the jobless rate.
“The gain in payrolls is more than expected and is positive for oil,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.
The Standard & Poor’s 500 Index (SPX) and the Dow Jones Industrial Average (INDU) both jumped more than 1 percent. It was the biggest advance for the S&P 500 in seven weeks.
“The stock market is pushing higher and oil is tracking the stock market,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “The jobs report is better than expected and it’s helping oil.”
U.S. total petroleum consumption increased 2.7 percent last week to 18.8 million barrels a day, the Energy Information Administration said on June 5. Crude inventories fell 6.27 million barrels to 391.3 million, the biggest drop since December. It reached an 82-year high the prior week.
“Inventories, although still high, are coming down, and you have an improving economy here in the U.S.,” Kilduff said.
Crude fell earlier as the dollar strengthened against the euro on concern that the Federal Reserve will slow its stimulus policies. The bank has expanded its balance sheet to a record $3.4 trillion with $85 billion of asset purchases a month, known as quantitative easing, to spur growth and reduce unemployment.
“It’s not a bad report and the prospect of the Fed tapering quantitative easing is looming out there,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant.
Fed Chairman Ben S. Bernanke said on May 22 that the central bank is trying to assess whether it has seen “real and sustainable progress in the labor market outlook.” If it has, the Fed could “take a step down” in its pace of purchases in the “next few meetings,” he said.
The dollar strengthened 0.2 percent against the euro after paring an increase of 0.4 percent to $1.3192. A stronger dollar reduces oil’s appeal as an investment alternative.
WTI futures ranged from $91.26 to $95.92 for the past two weeks before breaking above $96 today.
“The market has been moving sideways for a few days and the reason is market participants are really trying to figure out what the Fed is going to do next,” Schenker said. “No one is sure, not even the Fed.”
Implied volatility for at-the-money WTI options expiring in July was 19.8 percent, compared with 21.8 percent yesterday, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 766,682 contracts as of 3:11 p.m. It totaled 685,952 contracts yesterday, 15 percent higher than three-month average. Open interest was 1.78 million contracts.
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