Crude Ends Lower On Weak Equities, Dollar Gains

Crude-oil futures fell Friday despite an improving U.S. jobs picture as traders focused on declines in equities markets and a stronger dollar.

Light, sweet crude oil for February delivery settled 25 cents, or 0.3%, lower at $101.56 a barrel on the New York Mercantile Exchange after trading as high as $102.80 earlier in the session. Brent crude oil on the ICE Futures exchange rose late in the session to trade 80 cents higher at $113.06 a barrel.

After trading higher early Friday, a lower opening for the U.S. stock market held oil futures in negative territory. Equities have served as a guide for oil prices in recent months, and worries about Italy's debt situation kept investors from cheering an improving U.S. employment picture.

A stronger dollar against the euro also took some wind out of the oil market. A rising dollar typically weighs on oil as it makes crude oil more expensive for buyers in other currencies.

"All the good news was quickly discounted," said Dominick Chirichella, an oil analyst at the Energy Management Institute. "The European bad news was once again accentuated...and intra-day the correlations have been really tight."

Oil prices initially surged after the Labor Department reported nonfarm payrolls rose by 200,000 last month, with private companies adding 212,000 jobs. The unemployment rate also declined to 8.5% in December, the lowest level since February 2009.

"On the whole, this is a good report," said Matt Smith, oil analyst at Summit Energy, of the employment report but he noted that the market was already expecting improving jobs numbers following a private report on the job situation on Thursday.

Friday's decline provided another roadblock in crude oil's latest rally above $100 a barrel. After pushing towards $104 earlier in the week, a report Thursday signaling weak U.S. demand for crude oil reversed the surge.

The Energy Department reported that stockpiles of oil and fuel stockpiles rose in the week ended Dec. 30, while demand fell to 14-year lows for the last week of the year.

Meanwhile, investors are keeping close watch on the Persian Gulf. Iran has ratcheted up tensions there by threatening to close the Strait of Hormuz, the world's most important oil transit chokepoint with a third of waterborne oil trade passing through the two-mile-wide strait each day.

The U.S. has made clear it doesn't plan to allow Iran to close the transit route.

In a research report Friday, J.P. Morgan said other Middle East exporters likely have enough spare oil-production capacity to replace Iran's exports should a European Union embargo on Iranian oil move forward.

"There is a brief window in the coming months where there is probably enough slack in the system to cover the loss of virtually all Iranian exports," said J.P. Morgan analyst Lawrence Eagles in the report.

Traders said a premium has already been built into current oil prices, though any escalation toward conflict in the strait would likely send prices higher, at least initially.

Front-month February reformulated gasoline blendstock, or RBOB, settled 1.51 cents higher at $2.7516 a gallon. February heating oil recently traded 3.14 cents higher at $3.0702 a gallon.