CRANBURY, N.J. (DTN) -- Nearest delivered oil futures on the New York Mercantile Exchange and Brent crude on the IntercontinentalExchange rallied Friday to end with sharp gains on the session, erasing Thursday's sell-off to one-month lows, but are still down on the week while the medium-term trend for the complex reversed lower this week.
The rally follows oversold market conditions after six consecutive sessions with a loss, and coincided with a weakening U.S. dollar after reaching a two-week high Thursday in volatile trading in the currency index.
Sentiment garnered a boost off of reports that both sides of the Brexit referendum have suspended campaigns and bookmakers continue to favor the "stay" camp. It is also possible that the crude oil market drafts support in the wake of remarks from BP's CEO suggesting that supply and demand forces in the oil market will come back into balance later this year," said R.J. O'Brien in a note to clients.
Worry that a majority of Britain's voters in a June 23 referendum would decide on exiting the European Union triggered a steep sell-off in oil futures Thursday, with the decline accelerated with a break below initial support. Early Thursday, the Bank of England warned an exit from the bloc by Britain would damage its economy, a verdict also proffered by analysts including a slowdown in Europe's economy and its global knock-on effect. Slowing economic growth would reduce demand for oil.
NYMEX July West Texas Intermediate futures settled up $1.77 at $47.98 bbl, cutting a weekly loss to $1.09, with ICE August Brent crude $1.98 higher with a $49.17 settlement while down $1.37 on the week.
NYMEX July ULSD futures rallied 5.88cts to a $1.4817 gallon settlement while down 3.43cts from prior Friday. NYMEX July RBOB futures ended Friday with a $1.5053 gallon settlement, up 4.0cts on the session and down 5.43cts on the week.
A nine rig increase in the U.S. oil patch this week reported early afternoon by oil services provider Baker Hughes, Inc., the third consecutive weekly gain in the reactivation of oil rigs, acted as a mere speed bump in Friday's rally. Since May 27, 21 rigs have been put into service in the United States to drill for oil to now total 337, although down 294 from year prior.
On Tuesday, the International Energy Agency revised its short-term outlook for the global oil market, with the Paris-based agency speeding up the time it sees a supply-demand balance from sometime in early 2017 to the second half of 2016 after a sharply slower than previously anticipated pace to inventory building during the first half of the year from 1.5 million bpd to 800,000 bpd.
The change in outlook was driven by two main features -- stronger-than-expected oil demand growth and unplanned supply disruptions.
IEA amended its global oil demand growth outlook 200,000 bpd higher this year for annual growth of 1.3 million bpd, with first quarter demand growth outpacing expectations by 400,000 bpd for year-on-year growth of 1.6 million bpd. IEA expects a 1.3 million bpd increase in global oil demand growth in 2017, too, driven by the United States and India.
Unplanned supply outages in May, with the Energy Information Administration said averaged 3.7 million bpd also prompted the adjustment in the outlook.
IEA expects oil supply from producers that are not part of the Organization of the Petroleum Exporting Countries to contract by 900,000 bpd this year, with a drop in U.S. shale oil production accounting a 500,000 bpd of the year-on-year decline.
Brian L. Milne can be reached at firstname.lastname@example.org
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