Positive US jobs data boosts oil demand prospects despite inventory buildup

Concerns over potential supply disruptions, stemming from escalating tensions between the US and Iran and the risk of attacks on Tehran or shipping, caused oil prices to tick up on Thursday morning.

Meanwhile, a strong labour market in the US as indicated by the latest economic data also augurs well for energy markets, according to experts. 

The price of West Texas Intermediate crude last traded at $64.85 a barrel, up 0.3%, while Brent was 0.2% higher at $69.57 a barrel. 

Strong fundamentals overshadow negative points

Investor concerns regarding US-Iran tensions and positive economic data propelled both major oil benchmarks higher on Wednesday, overshadowing an increase in US crude inventories. 

Brent futures had risen by 0.87%, while WTI saw a gain of over 1.05%.

Following his talks with Israeli Prime Minister Benjamin Netanyahu on Wednesday, US President Donald Trump stated that they did not reach a "definitive" agreement on a path forward regarding Iran. However, he stressed that negotiations with Tehran would continue.

Earlier, on Tuesday, Trump had indicated he was considering deploying a second aircraft carrier to the Middle East if a deal with Iran was not secured, even as the two nations prepared to resume talks.

US and Iranian diplomats engaged in indirect discussions last week in Oman. The specific date and location for the next round of US-Iran talks are still pending an announcement.

IG analyst Tony Sycamore noted that a sustained price break above the $65–$66 level in WTI crude oil would necessitate a further escalation of tensions in the Middle East. 

Conversely, any de-escalation could rapidly lead to profit-taking, pushing prices back towards the $60-$61 range.

US crude inventories saw a significant increase last week, rising by 8.5 million barrels to reach 428.8 million barrels, according to the Energy Information Administration.

This hefty build far surpassed the 793,000-barrel rise analysts had expected in a Reuters poll, putting a cap on gains in oil prices.

Positive US data boosts oil demand prospects

However, positive economic data and a strong US labour market also kept oil prices supported. 

The Labor Department reported an unexpected acceleration in US job growth for January, with the unemployment rate dropping to 4.3%. This data signals continued economic health.

In January, non-farm payrolls saw an increase of 130,000 jobs. This figure is significantly higher than the downwardly revised increase of 48,000 jobs reported for December.

“Following a series of weaker private indicators, the data suggests stabilization rather than strong acceleration. Markets that had positioned for a rapid easing cycle responded by repricing yields higher and scaling back expectations for near-term rate cuts,” Claudio Galimberti, chief economist at Rystad Energy, said in an emailed commentary. 

The energy markets will likely find this moderately supportive, he added.

Although the US isn't the main source of growth in worldwide oil demand, the stable labor market confirms the strengthening demand outlook. The US is the world’s biggest producer of crude oil, and its largest consumer as well. 

The US labour market cycle is confirmed to be mature rather than accelerating, based on revisions to earlier data. 

However, the slightly stronger US macroeconomic signal does provide a marginal boost to the energy demand outlook, especially in a market where geopolitical risk is already being weighed against OPEC+ supply management, Galimberti noted.