Oil prices retreat after weak U.S. labor data; supply jitters provide boost

Investing.com--Oil prices slipped lower Wednesday, handing back some of the recent gains after weak U.S. labor data pointed to deteriorating economic activity in the world’s largest consumer. 

At 08:45 ET (12:45 GMT), Brent oil futures fell 0.7% to $65.17 a barrel, while West Texas Intermediate crude futures dropped 0.8% to $62.93 a barrel.

U.S. labor market slows

Data released earlier Wednesday showed that U.S. private payrolls increased far less than expected in May, increasing by only 37,000 jobs last month after a downwardly revised 60,000 rise in April.

The ADP report was published ahead of the more comprehensive employment report for May due to be released on Friday by the Labor Department’s Bureau of Labor Statistics. 

The labor market continues to ease amid economic uncertainty from tariffs. Government data on Tuesday showed there were 1.03 job openings for every unemployed person in April, little changed from March.

This all points to reduced economic activity in the world’s largest economy.

Oil buoyed by geopolitics, supply jitters  

The crude market had posted two days of strong gains after the Organization of Petroleum Exporting Countries and allies, a group known as  OPEC+, decided to increase production in July at a similar pace seen in the past two months. The move helped quell some concerns about oversupply. 

"Preliminary production numbers from a Bloomberg survey show that OPEC production increased by 200k b/d month-on-month to 27.54m b/d in May. This was less than OPEC’s share of just over 300k b/d of the total 411k b/d OPEC+ supply increase," said analysts at ING, in a note.

"Some OPEC members had already been producing above their targets, reducing the actual supply increases in the market. In addition, some members -- including Saudi Arabia -- fell short of production targets. Following large supply hikes for June and July, the group’s output should continue trending higher at least for the next couple of months."

Heightened geopolitical tensions between Russia and Ukraine have also helped prices rise, especially after Ukraine launched a series of deadly strikes against Russia, undermining progress towards a ceasefire.

Recent reports also showed that U.S. lawmakers were preparing even stricter restrictions on Moscow’s energy industry, this time targeting major Russian oil buyers India and China. 

In the Middle East, laggard nuclear talks between the U.S. and Iran pointed to Washington maintaining or even tightening its sanctions on Tehran’s oil industry.

Iran’s Supreme Leader Ayatollah Ali Khamenei said on Wednesday that abandoning uranium enrichment was "100%" against the country’s interests, rejecting a central U.S. demand in talks to resolve a decades-long dispute over Tehran’s nuclear ambitions.

North American oil supplies are also expected to be disrupted by severe wildfires in Canada’s oil-rich Alberta province, although the impact is likely to be minimal.

"Supply risks around the Alberta wildfires appear to be receding, at least for now, due to rainfall. Oil producer Canadian Natural Resources restarted production at one of its sites after halting production last week due to fires," ING added.

U.S. inventories shrink more than expected - API 

Data from the American Petroleum Institute showed U.S. oil inventories shrank by 3.3 million barrels (mb) in the week to May 30, much more than expectations for a draw of 0.9 mb. 

The API data usually heralds a similar reading from official inventory data, which is due later in the day. The API prints also showed U.S. inventories shrinking for a second consecutive week. 

Draws in U.S. inventories come ahead of the travel-heavy summer season, which usually sees outsized demand in the world’s biggest fuel consumer. But oil markets are on edge over any potential slowdown in demand, especially amid heightened uncertainty over the U.S. economy under President Donald Trump.

Ambar Warrick contributed to this article