Brent Stages Narrow Recovery, Still Lower after US Jobs

Oil Refining’s Fortunes Rise
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Brent crude futures fell on Friday as supportive U.S. jobs data strengthened the dollar, while U.S. gasoline futures rallied to a 2013 high because high-priced ethanol credits, or RINs, are making fuel imports from Europe too expensive.

The U.S. dollar hit a 3-1/2-year high versus the yen and a three-month peak against the euro after the government reported U.S. non-farm payrolls rose more than expected in February, adding 236,000 jobs and easily beating economists' expectations for a gain of 160,000.

Brokers and analysts said recent high prices for ethanol blending credits, or RINs, had closed the arbitrage window for gasoline imports from Europe. RIN stands for Renewable Identification Number, a numeric code that producers or importers of renewable fuels are required to generate for each gallon.

Importers incur the obligation to have enough credits to comply with U.S. renewable fuel law and current high prices make them too expensive to buy.

Front-month Brent futures fell 72 cents to $110.43 a barrel, having fallen as low as $109.14 during the session. Brent needs a close above $110.40 to avoid posting a fourth straight weekly loss.

U.S. crude was down 43 cents at $91.13 a barrel, having traded from $90.83 to $91.73, staying on pace to post a small, 0.5 percent gain for the week.

"The employment report showed solid gains," said John Kilduff, a partner at Again Capital in New York. "It appears good enough to further the equity market rally and the dollar. Perversely, the strengthening dollar will limit gains in crude oil, due to the inverse correlation."

However, he noted that the report confirmed solid gains in gasoline demand, with an increase in drivers going to new jobs.

Investors have been liquidating long positions across the commodities complex and adding to equity market holdings in the last two weeks. Global equities hit their highest level since June 2008 on Friday.

"The easy money is going into stocks, and commodities are not getting any traction," said Ole Hansen, head of commodity strategy at Saxo Bank. "The dislocation is growing."

Bucking the trend, U.S. April gasoline was up 3.92 cents at $3.1625 a gallon, having reached $3.1845 during the session, the highest price for front-month futures since Sept. 28.

"The combination of the spike in RINs and the better than expected jobs numbers, and a lot of short covering, pushed gasoline higher," said Phil Flynn, analyst at Price Futures Group in Chicago.