Oil Extends Gains As U.S. Labour, Middle East Fears Appear Oversold

Oil was also supported by a force majeure in Libya: File Image/Pixabay

Oil on Thursday extended its gains on a reversal of sentiment about the state of the U.S. labour market, with fresh data suggesting that fears about its deterioration were unfounded.

The U.S. Labor Department disclosed that initial claims for state unemployment benefits fell 17,000 to a seasonally adjusted 233,000 for the week ended Aug. 3, the biggest drop in about 11 months; meanwhile, the previous rises in unemployment claims were attributed to temporary motor vehicle plant shutdowns and Hurricane Beryl.

This came on the heels of the Energy Information Agency earlier reporting a sixth straight week of stocks dropping in the U.S., and as a result, as of 15:31GMT, Brent rose 57 cents to $78.90 per barrel and West Texas Intermediate rose 87 cents to $76.10.

However, muddling the American outlook to a degree was the EIA also reporting that gasoline stocks rose by 1.3 million barrels in the week to 225.1 million barrels, compared with expectations for a 1 million-barrel draw.

For his part, Dennis Kissler, senior vice president for trading at BOK Financial Securities, noted that "A recovery in the stock market is also easing some recessionary demand fears."

Oil on Thursday was also said to be supported by Libya's National Oil Corporation declaring force majeure at its Sharara oilfield, with the company having gradually reduced production because of protests.

Citi stated that Brent could hit the mid-$80s in the foreseeable future due to a variety of circumstances: "Upside risks in the market remain, from still-tight balances through August, heightened geopolitical risks across North Africa and the Middle East, the possibility of weather-related disruptions through hurricane season and light managed money positioning."

But as for worries in the aftermath of Iran vowing to strike Israel over the assassination of a Hamas leader last week, Ryan Grabinski, an analyst with Strategas, told clients in a note, "Oil continues to be a show-me story for geopolitical risk: regardless of the ongoing conflicts in the Middle East, particularly with Iran and Israel, there has been no meaningful disruption to the flow of crude oil in the region."