CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures with nearest delivery settled a choppy session higher Friday, with a decline in U.S. rigs drilling for oil this week boosting crude futures while short covering rallied the November oil products contracts into their expiration.
Mixed early in the session, NYMEX oil futures turned higher as the day wore on, with November RBOB and ULSD futures posting their session highs at $1.4136 and $1.5071, respectively, in market-on-close trade before rolling off the board. The expiration-led short covering rally narrowed the November-to-December ULSD contract discount in the contango market while widening the November premium to December in the seasonally backwardated RBOB market.
Despite a weaker U.S. dollar, West Texas Intermediate crude for December delivery on the NYMEX bounced on either side of unchanged until the early afternoon publication of active drilling rigs in the United States, with Baker Hughes, Inc. reporting a decline of 16 rigs looking for oil through the week ended Friday. At 578, active rigs drilling for oil are the fewest since June 2010 while down 1,004 from the comparable year-ago period.
The Baker Hughes report helped in pushing the December WTI contract on NYMEX and the December Brent futures contract on the IntercontinentalExchange to their intraday highs at $47.03 barrel and $50.00 early afternoon ahead of the closing bell.
NYMEX December WTI futures settled up 53 cents at $46.59 bbl and gained $1.99 or 4.5% from prior Friday, while the ICE December Brent contract settled 76 cents higher at $49.56 bbl and up $1.57 or 3.3% on the week.
For oil products, NYMEX November ULSD futures expired 2.46 cents higher at $1.4994 gallon and up 4.5 cents or 3.1% on the week, with the December contract up 1.83 cents at $1.5167 gallon.
NYMEX November RBOB futures rallied 5.54 cents to a $1.4050 gallon expiration, the highest close in more than two weeks, while advancing 10.14 cents or 7.8% from prior Friday.
End-month book squaring largely offset mostly softening economic data, with the Commerce Department Friday morning reporting household spending up a modest and less-than-expected 0.1% in September and after a 0.4% hike in August. The University of Michigan's consumer sentiment index rose from 87.2 in August to 90.0 in September, but that was less than a preliminary reading of 92.1 and expectations for optimism to bump up to 92.5.
The Chicago Purchasing Mangers' Index did move from contraction in August to expansion in September, up from 48.7 to 56.2, with 50 the dividing line between contraction and growth.
Still, the sluggish readings follow a 1.5% expansion in the U.S. economy in the third quarter reported Thursday by the Bureau of Economic Analysis in their advanced estimate, a slowdown from the second quarter's 3.9% annualized growth rate.
The weak GDP reading, which was only slightly below market expectations, reversed rising sentiment that the Federal Reserve would hike the important federal funds rate from between zero and 25 basis points in December.
The Federal Open Market Committee on Wednesday following their two-day policy meeting held the key interest rate at the historical low, but hinted in their release afterward that a rate increase was still on the table during their final meeting in December. Ahead of the release, the market had largely discounted expectations that the Fed would boost the federal funds rate in 2015.
The near zero interest rate has been in place for seven years, with the low borrowing costs seen lending support for commodities and equities.
This week's advance in oil futures comes despite higher domestic crude production week prior, up 16,000 barrels per day at 9.112 million bpd, although down from a peak in April at 9.6 million bpd. It also ran counter to a higher production by the Organization of the Petroleum Exporting Countries in October, with Bloomberg reporting the cartel bumped up output 74,000 bpd from September to 32.211 million bpd in October, and well above their 30.0 million bpd quota. Meanwhile, Iran is reported to be ready to flood the market with oil once sanctions on its exports are removed, which is expected to drive down global oil prices.
Brian Milne can be reached at firstname.lastname@example.org
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