OIL FUTURES: NYMEX WTI settles at seven-year high on tightened supply and demand balances

Crude oil futures settled higher Oct. 8 on the back of tightened supply balances and a weak US employment report that may present headwinds to an increasingly hawkish US Federal Reserve.

NYMEX November WTI climbed $1.05 to $79.35/b and ICE December Brent finished up 44 cents at $82.39/b.

US non-farm payrolls climbed by 194,000 jobs in September, US Department of Labor data showed Oct. 8, down from 366,000 in August and well below market expectations of around 500,000.

Oil futures paradoxically moved higher following the report, in part due to the fact that the weak print may add headwinds to a recent hawkish pivot in US Federal Reserve monetary policy, analysts said.

NYMEX WTI reached a session-high $80.11/b in midmorning New York trading, the first time the front-month contract has crossed above $80/b intraday since Nov. 1, 2014. While the contract later gave back some of the increase, it was still the highest front-month settle since Oct. 31, 2014.

NYMEX November RBOB settled 3.18 cents higher at $2.3662/gal and November ULSD climbed 1.41 cents to settle at $2.4737/gal.

"The jobs report came in well below expectations, questioning the timing of a well-telegraphed November taper, as well easing some enthusiasm about Fed hikes in 2022," TD Securities analysts said in a note. "Energy markets are solidifying at the upper end of recent trading ranges as the fear factor and right tail risks become more embedded heading into the winter months that could exacerbate the energy crisis in Europe and Asia."

The Federal Reserve's Federal Open Market Committee signaled that it would likely begin tapering its bond buying program before year's end and pointed to at least two interest rate hikes in 2022. But the lackluster jobs data could put those rate hikes in jeopardy, analysts said.

"This report further cements the Fed's view that tapering does not start the countdown for interest rate hikes," OANDA senior market analyst Ed Moya said in a note. "If next month's report also has a similar slow pace of hiring, Wall Street might become more skeptical of any rate hikes happening at the end of next year."

Rising interest rates would add headwinds to investment activity economy-wide and would likely be bearish for energy demand.

Despite the employment report missing expectations, it still showed continued improvement in the labor sector, with the nationwide unemployment rate falling to 4.8% in September, down from 5.1% in August and a fresh pandemic low.

Crude oil futures had been trading higher overnight after the US Department of Energy said it had no immediate plan to sell emergency oil stocks from the Strategic Petroleum Reserve or reimpose crude export restrictions, but rather was including them among "all the tools" open to the administration. On Oct. 6 US Energy Secretary Jennifer Granholm had suggested these actions could be taken in order to combat rising gasoline prices.

Following the DOE's clarification market focus again shifted toward tightening supply balances heading into the winter months.

"An acceleration in gas-to-oil switching could boost crude oil demand used to generate power this coming northern hemisphere winter. However, the US may be heading into winter with its lowest stockpiles of heating oil for decades," ANZ research analysts said in a daily note Oct. 8.

"EIA data shows that inventories of distillate, used for both diesel and heating oil, are enough to meet 31.2 days of demand. This is the tightest it has been since 2000," ANZ analysts added.