Oil Futures Settle Mixed Friday

NEW YORK (DTN) -- New York Mercantile Exchange oil futures ended mixed Friday afternoon after a volatile session, but eked out modest gains for the week as supply outages in Canada and Africa combined with falling U.S. production to reduce the global oil surplus.

The spot-month June contract for West Texas Intermediate crude was the weakest segment of the oil futures complex, turning modestly lower on book squaring ahead of its expiration this afternoon.

Strength in the U.S. dollar was also contributing to the selling pressure on NYMEX oil futures, as well as a weather forecast for Canada that included half an inch of rain over the weekend in the Alberta oil sands region. Combined with relatively cool weather, weekend conditions may allow for some progress to be made in containing the wildfires that continue to hamper a restart of 1.0 million barrels per day (bpd) of oil production, said analyst Tim Evans at Citi Futures.

NYMEX June WTI crude futures expired down 41 cents to $47.75 per barrel (bbl) while the July WTI futures contract slipped 26 cents to a $48.41 bbl settlement. Midweek, WTI posted a $48.95 seven-month high on the spot continuation chart, while up $1.51 or 3.3% for the week.

The July Brent contract on the IntercontinentalExchange settled down 9 cents at $48.72 bbl while gaining 89 cents for the week, with the contract posting a $49.85 6-1/2 month spot high midweek.

In products trade, NYMEX June ULSD futures gained 1.12 cents to $1.4900 gallon at settlement with the contract up 8.69 cents for the week, having posted a $1.52 6-1/2 month spot high midweek. June RBOB futures eked out a 0.17 cent gain to settle at $1.6356 gallon while advancing 4.74 cents for the week, having posted a $1.6637 nine-month spot high midweek.

On Wall Street, major U.S. equity indices were higher this afternoon while the dollar remained near a seven-week high. U.S. crude oil has an inverse relationship with the greenback.

The dollar has strengthened on expectation the Federal Reserve might raise interest rates as soon as next month. The minutes of the Federal Open Market Committee's policy meeting in April released midweek echoed hawkish comments by the heads of New York, Boston, Richmond, Atlanta and Kansas City Feds that the economy is strong enough to sustain a rate hike.

Early afternoon, Baker Hughes, Inc. released their weekly oil rig count report that showed the number of rigs drilling for oil and gas in the United States fell by two to a fresh record low at 404 this week, with the number of active oil rigs unchanged at 318--the lowest since October 2009. The U.S. oil rig count, which had fallen for eight consecutive weeks through May 13, signals the direction of domestic oil production.

On Wednesday, the Energy Information Administration said U.S. crude oil production eased by 11,000 bpd to 8.791 million bpd in the week-ended May 13. There remains a massive inventory overhang however, with the EIA on Wednesday reporting domestic crude inventory up 1.3 million bbl to 541.3 million bbl--a supply level last seen in the 1920s.

The oil futures complex has been choppy this week, with short-term overbought technical factors offset by supply outages in Canada, Nigeria, Libya and Venezuela totaling 2.0 million bpd that investment bank Goldman Sachs said wiped out a global oil supply surplus.

However, Libyan oil exports resumed Thursday after security issues and disagreements between rival leaders of the state oil company halted exports for three weeks.

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