Oil Futures Settle Higher Friday

NEW YORK (DTN) -- New York Mercantile Exchange oil futures shook off early weakness and rallied this afternoon, heading into the three-day Fourth of July holiday weekend with strong momentum spurred by short-covering.

"The market turned around because of strong manufacturing data from ISM but also because people didn't want to be short this market with the threat of a strike in Norway," said analyst Phil Flynn at Price Futures Group.

He added, "The rig count data rose but those rigs are small and won't necessarily lead to more production."

Others agreed.

"The petroleum markets are seeing some light volume consolidation ahead of the long U.S. Independence Day weekend, with firmer equities and a weaker U.S. dollar as background financial supports for crude oil," said Tim Evans, a specialist at Citi Futures. "Manufacturing PMI data for June has been positive for the most part, suggesting that the global economic prospects were brightening last month."

At settlement, NYMEX August West Texas Intermediate crude oil futures rose 66 cents to $48.99 per barrel (bbl), reversing off a three-day low at $47.90 while up $1.35 for the week.

September Brent on the IntercontinentalExchange advanced 64 cents to a $50.35 bbl settlement, reversing off a two-day spot low of $49.25 while up $2.94 for the week.

In products trade, NYMEX August ULSD futures gained 2.28 cents to $1.5115 gallon after inside trade, up 5.62 cents for the week. The August RBOB futures contract climbed 1.22 cents to $1.5135 gallon, reversing off a two-week spot low of $1.4658 while down 1.15 cents for the week.

The futures market was off to a slow start on concern oil supply may be running ahead of demand. Nigerian and Canadian production were rising again after recent outages and the Organization of Petroleum Exporting Countries' output also climbed to a record high in June, said analysts.

However, a two-day wage talks in Norway between oil companies and oil workers' unions meant to avert a strike that would cut the country's oil and gas output by 12% didn't lead to a deal today. The workers' union had given a strike notice effective Saturday, July 2, which would shut-in production at five North Sea offshore oil fields.

Norway is currently the biggest oil producer in Western Europe and the potential production shut-in would cut one of two of the three streams that feed Brent, the international crude benchmark.

Also, Baker Hughes Inc. reported today that the number of rigs for drilling oil and gas rose by 10 to 431 this week, with the number of active oil rigs up 11 to 341.

The oil market has been volatile during the past several days and that trend continued today ahead of the holiday weekend break. The Independence Day celebration will be held Monday with markets closed, so traders moved to square their positions.

There are going to be more people traveling by automobile to the holidays this year than a year ago, AAA said, while the U.S. Energy Information Administration said midweek that crude stocks fell more than expected last week.

On Wall Street, U.S. stock indices revered higher on risk-on trade as the dollar weakened.

The Institute for Supply Management said today that its factory index rose to 53.2 in June, the highest since February last year, from 51.3 in May. Earlier this morning, China released bearish data for its manufacturing sector for June.

Markets have recovered a portion of losses in the wake of Britain's vote a week ago to exit the European Union. Mark Carney, governor of the Bank of England, said he's considering economic stimulus measures such as cutting interest rates this summer to avert the crisis from Brexit. The U.S. Federal Reserve is not expected to raise interest rates this year.

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