Oil Futures Settle Lower

CRANBURY, N.J. (DTN) -- Nearest delivered oil futures on the New York Mercantile Exchange and Brent crude on the IntercontinentalExchange settled lower Friday, with light profit taking early in the session accelerating in the afternoon as the U.S. dollar surged and after Baker Hughes, Inc. reported a second straight week in which rigs in the U.S. oil patch were reactivated.

On the week, the crude grades moved higher as did ULSD futures, although West Texas Intermediate settled below $50 per barrel (bbl). The RBOB contract lost 3.0% of its value from prior Friday.

Early afternoon, Baker Hughes reported three rigs were deployed in the United States to drill for oil this week, which follows the prior week's nine rig increase. It was the first back-to-back weekly increase in the U.S. oil rig count since August 2015, with the oil services provider reporting 328 active oil rigs in the U.S. as of today.

A separate report quoting Harold Hamm, CEO of Continental Resources, and an early pioneer in shale drilling in the Bakken formation in North Dakota, said his company has started completing some of the drilled but uncompleted wells in the Bakken because of higher priced crude.

U.S. oil production fell nearly 1.0 million barrels per day (bpd) in late May from an April 2015 peak, but increased 10,000 bpd to 8.745 million bpd during the week-ended June 3, coinciding with WTI's first move over $50 bbl since October 2015.

Friday afternoon, NYMEX July WTI settled down $1.49 at $49.07 bbl, sliding from Thursday's $51.67 11-month high on the spot continuation chart, and edged 45 cents higher on the week. ICE August Brent settled $1.41 lower at $50.54 and gained 90 cents on the week, fading from Thursday's $52.86 bbl eight-month spot high.

Exerting added price pressure on WTI futures today was a rally by the U.S. dollar that retraced more than half of the plunge by the index from prior Friday to a one-month low Wednesday on concerns over global economic growth. The strengthening dollar index coinciding with tumbling equities comes as a June 23 referendum in Britain that will decide whether the country stays or exits the European Union nears, with an exit by Britain seen slowing economic growth in Europe.

The dollar had plunged prior Friday into midweek as expectations the Federal Reserve would hike interest rates at their Tuesday-Wednesday (6/14-15) policy were dismissed after a bleak employment report for May questioned U.S. economic growth. Federal Reserve Chair Janet Yellen signaled on Monday that central bank officials would not hike the federal funds rate next week, wanting more information to determine whether the report was an anomaly or a developing trend.

For oil products, NYMEX July ULSD futures erased 3.52 cents in value on the session with a $1.5160 gallon settlement, while advancing 2.79 cents from prior Friday. ULSD traded at a $1.5848 gallon eight-month high on the spot continuation chart on Thursday.

Congestion trading overnight evolved into a 5.9 cents selloff by day's end for NYMEX July RBOB futures, which settled at $1.5596 gallon, trimming a decline to a $1.5522 one-month low on the spot continuation chart. On the week the gasoline contract lost 4.79 cents, with high inventory, which expanded a year-on-year surplus during the week-ended June 3 to 22.3 million bbl or 10.2%, has capped the upside for RBOB futures.

The high level of gasoline inventory is offsetting support from expected record consumption this year, with implied demand 363,000 bpd or 4.1% above year ago at 9.31 million bpd cumulatively from Jan. 1 through June 3.

Caution is in the wind however, with consumers a little less confident in early June then in May, with the preliminary index of consumer sentiment from the University of Michigan slipping 0.4 to a still strong 94.3. The survey's chief economist, Richard Curtin, said consumers rated their financial situation at the best levels since 2007, but were concerned over continued growth by the U.S. economy.

"A sustained reduction in the pace of job creation could prompt consumers to hold down spending to increase their precautionary savings," said Curtin.

Brian L. Milne can be reached at brian.milne@dtn.com

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