Oil Mixed in Choppy Thin Trade

NEW YORK (DTN) -- New York Mercantile Exchange oil futures were mixed early Friday, with the price action seesawing on either side of Thursday's settlements in thin trade ahead of the expiration of the West Texas Intermediate June contract and this week's count on active oil rigs in the United States, with the U.S. dollar slipping from Thursday's seven-week high.

The market awaits Baker Hughes, Inc.'s weekly oil rig count set for release at 1:00 PM ET, which has fallen for eight consecutive weeks through May 13. On Wednesday, the Energy Information Administration reported U.S. crude oil production eased by 11,000 bpd to 8.791 million bpd in the week-ended May 13.

At last look, NYMEX June WTI crude futures were down 8cts to $48.08 bbl ahead of its 2:30 PM ET expiration while the July WTI futures contract slipped 8cts to $48.59 bbl. The July Brent contract on the IntercontinentalExchange eased 12cts to $48.69 bbl.

In products trade, NYMEX June ULSD futures edged up 0.28cts to $1.4816 gallon while June RBOB futures were down 0.90cts to $1.6249 gallon.

On Wall Street, major U.S. equity indices were higher, while Treasury yields were little changed and the dollar eased. U.S. crude oil has an inverse relationship with the greenback.

Midweek, the dollar strengthened on expectation the Federal Reserve might raise interest rates as soon as next month. Those expectations intensified after minutes of the Federal Open Market Committee's policy meeting in April were released Wednesday afternoon that echoed this week's hawkish comments by the presidents of New York, Boston, Richmond, Atlanta and Kansas City Feds that the economy is strong enough to sustain a rate hike.

Recent data showed the labor market continues to heal and inflation is moving towards 2%, the level targeted by the Fed. However, there are dissenting voices in the market who argue that the Fed appears too eager to tighten policy that could stifle growth.

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.

There remains a massive inventory overhang however, with the EIA on Wednesday reporting commercial crude inventory in the United States increasing 1.3 million bbl to 541.3 million bbl--a supply level last seen in the 1920s.

Also, in Libya, oil cargo loading resumed at the port of Marsa el-Hariga on Thursday after security issues and disagreements between rival leaders of the state oil company halted exports for three weeks.

In Canada, production in Alberta's oil sands remained constrained by wildfires. Firefighters successfully fought off wildfires that on Thursday threatened production facilities belonging to Syncrude Canada Ltd. and Suncor Energy Inc., and light rain showers brought some relief even as fires spread eastwards.

It is still uncertain if the respite could help restart oil operations by the two Canadian oil companies, but the eastward spread of the wildfire could challenge those efforts. The wildfires have been burning since May 1, disrupting 1.0 million bpd of oil sands production, which represents a quarter of Canada's total crude output rate.

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