Oil Mixed Ahead of Rig Report

NEW YORK (DTN) -- New York Mercantile Exchange oil futures moved mixed with an upside bias Friday morning after trading mixed overnight, as the market awaits the latest Baker Hughes' rig count report.

For most of this week, investors have primarily focused on a softening economy and mixed domestic supply and demand oil fundamentals.

Anemic U.S. economic growth during the third quarter at 1.5% announced Thursday reduced the likelihood of a Federal Reserve interest rate hike in December, and prompted a decline in the U.S. dollar which, in turn, supported the oil futures complex.

Meanwhile, China is moving forward with efforts to jumpstart its sluggish economy through stimulus measures, and unveiled a five-year reform agenda this week to boost domestic consumption. But it comes as new data shows China's oil demand eased in September, thereby putting pressure on the futures market.

This is the final trading day for the week and for October, so book-squaring is to be expected, with the November RBOB and ULSD futures contracts expiring at the close of regular trade this afternoon. The market has been volatile this week.

At 8 a.m. CDT, NYMEX December West Texas Intermediate futures edged up 13 cents at $46.19 barrel after inside trade and have just turned lower. ICE December Brent crude futures edged up 38cts to $49.18 bbl.

In products trade, NYMEX November ULSD futures gained a fraction to $1.4839 gallon while December contract was up 1.15 cents at $1.5099 gallon. The November RBOB futures contract rose 2.19 cents to $1.3715 gallon, a two-week high, while the December contract was up 1.80 cents at $1.3574 gallon.

On Wall Street, U.S. equities were higher across the board on risk-off trade after a string of strong quarterly earnings by oil companies, with the dollar down to a two-day low after reversing off a 2-1/2 month high midweek. A weaker dollar supports commodities and equities markets.

Meantime, domestic petroleum supply and demand fundamentals are mixed in the short term, and that's causing traders to pick and choose which data to focus on at various times.

The U.S. Energy Information Administration reported a 3.4 million bbl crude oil stock build for the week ended Oct. 23, the fifth straight weekly crude stock build, with supply rising 26.0 million bbl over the five-week period.

The build came despite higher refiner crude inputs, a proxy for demand, which rose 271,000 barrels per day last week as refineries returning from seasonal maintenance ramped up operations. Inventories of refined products were drawn down last week as demand rose. Implied gasoline demand was up 5.4% year-on-year while distillate stocks rose 8.5% year-over-year.

Most of the focus is going to be trained on domestic crude production. U.S. crude oil production rose 20,000 bpd to 9.11 million bpd last week, the EIA data showed, but that's substantially down from peak at 9.6 million bpd in April. The market awaits Baker Hughes's weekly drilling report due early afternoon for clues on the direction of domestic crude oil output.

Overseas, Iran is expected to add to the overproduction by the Organization of Petroleum Exporting Countries by early next year. It comes as China's oil demand faded amid economic woes, with the latest data showing a 2.1% oil demand decline in September, said Barclays Capital. "Fundamentals suggest moderate demand ahead, in our view," Barclays says.

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