Oil Futures Whipsaw Lower Friday

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange nearest delivered oil futures and Brent crude on the Intercontinental Exchange reversed overnight gains to end lower on the session Friday, with only the RBOB contract advancing on the week amid the seasonal transition to stricter gasoline specifications in the spring and summer months following Thursday's expiration of the March contract.

West Texas Intermediate, ULSD and Brent futures whipsawed lower following the midmorning Friday release of U.S. manufacturing data showing a quicker slowdown in the business sector in February than expected, sowing concern over global oil demand.

The Institute for Supply Management's manufacturing index slid 2.4% to a less-than-expected 54.2% in February, the weakest growth rate for the sector since November 2016. The data was preceded by weak manufacturing data in major global economies, with manufacturing in China, Japan and the eurozone contracting in February. Although France's manufacturing sector ticked up to 51.1, the industry sector in Germany slid deeper into contraction at 47.6, a six-year low.

The global economy has been slowing for months, although the U.S. economy has outperformed economies elsewhere, and seen mitigating previous gloom-and-doom projections for an impending recession that sparked a major selloff in commodities and equities in the fourth quarter.

The data comes as reports indicate the United States and China are finalizing terms for a bilateral trade agreement, which would end a protracted trade dispute and seen buoying global trade and economic growth. U.S. tariffs on a raft of Chinese imports are credited with slowing economies in export driven China and Germany, among other countries.

Despite the manufacturing data, major equity indices gained, with the Dow Jones Industrial Average up more than 100 points in late trade, trading over 26,000. The U.S. dollar rallied, up 0.422 to 96.465 in late index trading, with the dollar and domestic crude having an inverse relationship.

Nymex oil futures reversed off multi-month highs spurred by bullish fundamentals, with Saudi Arabia this week reiterating its policy of making deep production cuts—crude output is expected at 9.8 million barrels per day (bpd) this month from a record high 11.016 million bpd in November 2018—despite U.S. President Donald Trump on Monday urging the Organization of the Petroleum Exporting Countries to take it easy.

An unexpected and steep 8.6 million barrels (bbl) drawdown in U.S. commercial crude stocks for the week-ended Feb. 22 reported Wednesday following a drop in U.S. crude imports to a 23-year low added to the bullish fervor midweek. Crude and gasoline stocks sharply reduced year-on-year surpluses, while the United States was a net exporter for only the second week on record.

In an outside down day, Nymex April WTI futures slid to a $55.57 bbl three-day low, with retracement support at $55.55 holding, and settled at $55.80 bbl, down $1.42, accounting for its loss on the week.

ICE May Brent futures settled down $1.24 at $65.07 bbl, and declined $2.05 or 3.1% on the week on a spot contract basis, with April futures expiring Thursday.

On its first day as the nearest delivered contract, Nymex April ULSD futures declined $0.0263 to $2.0010 gallon, and eased $0.0301 or 1.5% on a spot continuous basis from prior Friday.

Nymex April RBOB futures carved out a $0.0634 seasonal gap on the spot continuous chart with a $1.7124 gallon intraday low as it assumed front month status, while down $0.0220 to $1.7303 at settlement. RBOB futures rallied $0.1191 or 7.4% on the spot continuous chart this week.

Brian Milne can be reached at brian.milne@dtn.com

(BAS)

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