Oil Higher as Weekend Nears

NEW YORK (DTN) -- New York Mercantile Exchange oil futures headed higher Friday afternoon rallying alongside equities ahead of the week-end break as fresh data showed a rebound in U.S. consumer confidence.

The prospect of a continuing decline in domestic oil production bolstered by data showing a drop in drilling also boosted the futures complex, but a stronger dollar limited the advance in prices. Friday's rally moderately pared steep week-over-week losses in NYMEX oil futures. The complex fell earlier this week as global supply continues to outpace demand.

"I think that the continued decline in weekly oil production combined with the lower rig count is giving the market hope that the supply demand picture will come into balance sooner than expected," said Andy Lipow, president of Lipow Oil Associates in Houston.

NYMEX November WTI futures settled 88 cents or 2% higher at $47.26 barrel, off a three-day high at $47.50 while down $2.37 or 4.8%. The December ICE Brent crude contract rose 73 cents 1.5% to $50.46 bbl, off a three-day high of $50.70 but down $2.45 on the week.

In products trade, NYMEX November ULSD futures edged up 1.03 cents or 0.7% to a $1.4966 gallon settlement, off a three-day spot high of $1.5044 while down 9.43 cents or 5.9% for the week. NYMEX November RBOB futures climbed 2.08 cents or 1.6% to $1.3280 gallon at settlement, off a $1.3415 three-day high while off 8.87 cents or 6.3% for the week.

On Wall Street, U.S. equities rallied on risk-on trade while the dollar index bounced off Thursday's 6-1/2-week low and rallied to a three-day high after the final dose of data for the week raised hope about the economy.

The University of Michigan said its consumer sentiment index improved 4.9 points to 92.1 in October, better than expected, recovering from the 4.7 point drop to 87.2 in September. Other data showed U.S. industrial production fell 0.2% in September, with a contraction on oil and gas activity leading the way.

The market awaits the release next week of China's gross domestic product for the third quarter that could impact oil prices. China's slowing growth has dented the prices of oil and roiled global economies Monday's GDP data will offer a fresh look at just how sharp the slowdown is, with a weaker GDP data expected to instigate calls for more stimulus measures.

The market was keen on supply, with the afternoon rally coming after Baker Hughes reported a weekly drop in the number of oil rigs.

There were 595 rigs drilling for oil, down 10 on the week and 995 lower than a year ago. Rig counts provide a guide to production trend.

The U.S. Energy Information Administration's inventory report for the week-ended Oct. 9 was mostly bearish, but one part of the data that was considered bullish was an 80,000 barrel per day decline in domestic crude oil production to 9.1 million bpd.

"Prices are likely to move higher, starting in the latter half of 2016, providing producers with incentives to mitigate the decline in existing supply," said Barclays Capital. "We base this conclusion on detailed modeling of the elasticity of supply, which shows conventional oil production declines accelerate when prices are low."

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