Crude oil futures settled modestly higher Thursday, inching to a one-month high, but failed to break above $90 a barrel as a rally in equities prices fizzled.
Traders said a growing storm in the U.S. Gulf of Mexico that shut in a precautionary 80,000 barrels a day of oil output likely kept prices from declining on the day.
Market interest now will be focused on the August non-farm payrolls report due out at 8:30 a.m. EDT Friday, the latest updates from the National Hurricane Center, and short-covering ahead of the Labor Day holiday which will close markets on Monday.
"Nobody wants to go home short this weekend" with the "wildcard" of potential hurricane activity in the key oil-producing region, said Rich Ilczyszyn, market strategist at MF Global.
Seven companies have evacuated nine platforms in the Gulf of Mexico and shut in nearly 80,000 barrels a day of oil production, which is 5.7% of the flow from the region, the Bureau of Ocean Energy Management, Regulation and Enforcement said. Some 2.4% of the Gulf's natural gas output, or 127 million cubic feet, was also shut in by mid-afternoon on Thursday as a precaution ahead of the storm.
The National Hurricane Center said there is a 80% chance that the storm could develop into a hurricane within 48 hours as it moves slowly northward and advised residents of the northern Gulf of Mexico region to closely monitor it. Meanwhile, Hurricane Katia, now a category one storm, was expected to strengthen and could become a major hurricane, as it moves east of Puerto Rico early Sunday.
Light, sweet crude oil for October delivery settled 12 cents higher, at $88.93 a barrel, the highest level since Aug. 3. The contract hit a high of $89.90 a barrel, which many trader said placed on a path to challenge the $90.50 level. But the rally lost steam when equities turned lower.
The Labor Day report is expected to show non-farm payrolls in August rose by 80,000. Economic indicators provided a mixed picture Thursday,
New claims for jobless benefits fell by 12,000 to 409,000 in the week ended Aug. 27, the Labor Department said. That was below a consensus forecast for 410,000 claims. At the same time, the department reported worker productivity in the second quarter was revised to show a decline of 0.7%. That compared with a preliminary reading of a 0.3% decline and economists' consensus of a 0.6% decline. Labor costs were also revised upward, throwing up a potential barrier to corporate profit and job growth potential as the economy struggles to recover.
Later, oil prices were buoyed by news that the Institute for Supply Management said its manufacturing purchasing managers' index fell only to 50.6 from 50.9 in July. Economists surveyed by Dow Jones Newswires had expected the August PMI to come in at 49.0, which would have been below the 50 reading which indicates expanding activity.
The ISM figure "was widely interpreted as further evidence that a recession will be avoided," said Jim Ritterbusch, president of Ritterbusch and Associates.
Traders said bullish economic data would be likely spark a further rally in oil on the expectation that a recovering economy would lift what has been sluggish petroleum demand, as an especially weak summer driving season comes to an end. Data released by the Energy Information Administration this week showed second-quarter U.S. gasoline demand fell 3.6% from a year ago and was the lowest for the early part of the summer driving season since 2001. Weekly data for July and August show demand lagged a year ago by 1.6%.
Reformulated gasoline blendstocks futures for October settled 1.64 cents higher, at $2.8927 a gallon, as some East Coast refineries have yet resumed full operations after shutdowns related to Hurricane Irene, which struck the region on Sunday.
Heating oil futures for October delivery settled 3.22 cents lower at $3.0518 a gallon.