Oil Extends Rally Friday

Oil Extends Rally Friday

NEW YORK (DTN) -- New York Mercantile Exchange oil futures stretched gains for the third straight day Friday morning ahead of the release of a weekly industry report that traders hope will show another decline in crude oil drilling activity in the United States.

The Baker Hughes' weekly oil rig count report is scheduled for release at 1:00 PM ET, with the report seen as a proxy for U.S. production. A decline in active rigs searching for oil in the U.S., which has already fallen for 12 straight weeks, would be bullish for the oil complex.

The U.S. dollar halted its plunge this morning, reversing from a five-month low, with the steep selloff triggered by a dovish policy statement by the Federal Reserve Wednesday afternoon. The steep decline, with the greenback down 2.6% from Wednesday's high to today's low, fueled the rally by oil futures, with the West Texas Intermediate contract rallying from a $36.61 bbl low Wednesday to a $41.20 3-1/2 month high on the spot continuation chart in overnight trade.

At 9 a.m. ET, NYMEX April WTI crude oil futures were 85cts higher at $41.05 bbl and on track to capture a sizable weekly gain, with the April contract set to expire Monday afternoon. After punching through resistance at $40.00 bbl, spot-month WTI contract has resistance at $44.31.

May Brent futures traded on the IntercontinentalExchange advanced 77cts to $42.31 bbl, and have since rallied to a 3-1/2 month spot high of $42.45. The Brent premium over WTI is holding near a $1.26 bbl 1-1/2 month low this morning.

In products trade, NYMEX April ULSD futures moved 1.27cts higher to $1.2672 gallon, and have since traded at a 3-1/2 month spot high of $1.2745. The April RBOB futures contract climbed 1.15cts to $1.4498 gallon, and has since jumped to a one-week high of $1.4576, holding below the $1.4806 gallon six-month high on the spot continuation chart posted on March 10.

On Wall Street, equities extended gains this morning following a rally in European bourses. Equities continue to react to the dovish posture by the U.S. Federal Reserve, and are also tracking with a higher oil market.

The central bank on Wednesday left unchanged its benchmark federal funds rate and scaled down its expectation of the number of rate hikes this year from four to two on concerns sluggish global economic growth could pose risks for the U.S. economy. The dovish Fed statement came on the heels of recent stimulus measures by several central banks that have increased liquidity in the market.

Tim Evans, an analyst at Citi Futures, said the NYMEX WTI crude futures contract remains the strongest segment of the oil futures complex as the latest report of a decline in U.S. crude oil production helped drive the U.S. benchmark price higher.

The American Petroleum Institute said on Thursday that U.S. production declined to a 16-month low of 9.11 million bpd, yet remained above the pivotal 9.0 million bpd.

Also, the recently announced April 17 meeting between the Organization of Petroleum Exporting Countries and non-OPEC crude oil producers in Qatar has spurred speculative buying, especially for ICE Brent futures, according to Evans.

These producers are hoping to hash-out a deal to freeze production at January levels, with most of the OPEC members indicating support for the initiative. Analysts have a dim view of the initiative however, saying that freezing output won't result in a rebalancing of the oil market any time soon because production by countries like Russia, Saudi Arabia and Iraq are already at or near record highs.

Looking ahead, China's preliminary manufacturing data for March will be issued next week.

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