Oil Futures Seesaw Friday Morning

NEW YORK (DTN) -- New York Mercantile Exchange oil futures continue to seesaw between gains and losses while holding within a narrow range, with the West Texas Intermediate crude contract moving lower Friday morning as the U.S. dollar rallied on expectation the Federal Reserve would hike the federal funds rate later this year, as risks related to Greek debt crisis ease.

The oil futures complex also came under selling pressure due to oversupply market conditions, with federal data issued Wednesday showing higher gasoline and distillate stocks for the week ended July 10.

At 8 a.m. CDT, the NYMEX August WTI crude oil contract fell 48 cents to $50.43 bbl, off a better-than three-month spot low at $50.25. ICE September Brent contract slipped 28 cents to $56.64 bbl, taking over as nearest delivery after the August contracted expired Thursday afternoon.

In products trade, the NYMEX August ULSD contract was little changed, easing 0.61 cents to $1.6601 gallon and trading near a fresh five-month low at $1.6555. The NYMEX August RBOB contract was also little changed, up 0.07 cents at $1.8974 gallon.

The key issue for oil traders Friday is the strengthening dollar, with the greenback rallying to a near three-month high vs. a basket of six main world currencies. The euro fell to a 1-1/2-month low vs. the dollar.

The dollar’s rally is underpinned by optimism about the U.S. economy and recent comments from Federal Reserve officials.

Fed Chair Janet Yellen said in two days of Congressional testimony that the U.S. economy has proven resilient so far in the face of the Greek debt crisis and China's slowdown, adding the Fed is still likely to raise interest rates later this year.

The market has in recent years relied on liquidity provided by the Fed’s easy money policy. With the Fed tightening policy, investors are becoming concerned, which is pressuring commodity prices.

On domestic supply, distillate stocks rose 3.8 million bbl to 141.3 million bbl last week, and are in the middle of the average range for this time of year while gasoline stocks rose by a modest 58,000 bbl to 218.0 million bbl during the week reviewed, holding within the upper half of the average range, according to the Energy Information Administration.

Concern over a reported refinery outage in the Midwest has since eased, and instead the market is worried about an oversupply of crude oil supply. Genscape, which tracks petroleum supply levels, estimates crude stocks at the Cushing supply terminal which also serves as the delivery point for NYMEX WTI futures, increased 1.0 million bbl between last Friday and Tuesday.

For the week ended July 10, Cushing stocks posted a build of 400,000 bbl to 57.1 million bbl, EIA reported midweek.

Elsewhere, the North Sea’s Buzzard oil production, which was shut Thursday, is expected to restart today after lost power was restored. The shut-in, along with the August contract’s expiration, boosted Brent futures on Thursday, with the expected restart Friday weighing on the contract. Buzzard oil production averages 170,000 bpd.

Despite Tuesday’s nuclear deal with Iran, oil exports from the OPEC member are not expected to increase until next year. Sanctions that have sharply lowered oil exports from Iran will gradually be lifted, with implementation of the accord starting in October.

George Orwel can be reached at george.orwel@telventdtn.com