Crude oil suffered its worst session in months as WTI tumbled 4.5% to $87.17 and Brent slid 4% to $90.43, driven by a stronger dollar and rising rate expectations after the US economy added 172,000 jobs in May — more than double the 80,000 consensus estimate.
WTI crude plunged 4.5% to $87.17 a barrel and Brent crude fell 4% to $90.43 on Friday, the steepest single-day drop in months, as stronger-than-expected US jobs data fueled expectations the Federal Reserve may keep rates higher for longer.
"The bond and dollar reaction to the payrolls number is the primary driver — a 172,000 print versus 80,000 expected forces the market to reconsider the rate path," said Bret Kenwell, analyst at eToro. "If policymakers even start talking about rate hikes or taking a more hawkish posture, that could throw cold water on the recent stock market surge."
The US economy added 172,000 jobs in May, far exceeding the 80,000 consensus estimate from economists polled by Dow Jones Newswires and The Wall Street Journal. Figures for the prior two months were revised higher by a combined 93,000, signaling the labor market remains resilient even as rising energy costs from the Middle East conflict begin to weigh on consumers and businesses. Yields on US Treasury bonds rose in response, and the dollar strengthened against major peers, making dollar-denominated commodities more expensive for holders of other currencies.
The selloff in crude comes despite continued clashes in Lebanon and no apparent progress toward a US-Iran peace deal that would unlock energy exports through the Strait of Hormuz. The last time oil prices faced a similar demand-side shock from a strong dollar and rate expectations was in the second half of 2023, when WTI fell from the mid-$90s to below $70 a barrel over four months as the Fed held rates at 5.25% to 5.5%. The current macro setup mirrors that period: a resilient labor market, sticky inflation, and a hawkish-leaning Fed that markets are now pricing fewer cuts from.
The broader risk-off mood swept across asset classes. Wall Street's major indices closed deep in the red, with the Nasdaq plunging more than 4%, the S&P 500 falling over 2%, and the Dow dropping more than 1%. Technology stocks led the decline as the so-called Magnificent Seven — including Nvidia, Alphabet, and Meta — sold off on concerns that the massive sums poured into artificial intelligence may have been overdone. Broadcom shares fell almost 8% after its third-quarter revenue forecast undershot expectations, while Micron Technology dropped more than 13%.
"Everyone's realizing that perhaps this rally off the March lows has run its course for the time being," said Patrick O'Hare at Briefing.com.
For oil markets, the key question is whether demand destruction from a stronger dollar and tighter financial conditions will outweigh the supply risk premium from the Middle East. If the Fed maintains its current stance through the September meeting, WTI could test the $85 support level, a threshold that held during the April pullback. A rapid de-escalation in Lebanon that allows oil prices to drop would give the Fed room to look past the recent inflation spike, Kenwell noted — but the jobs data suggests that scenario is not yet in play.
This article is for informational purposes only and does not constitute investment advice.
