Oil Ends the Week Sharply Lower

Oil Ends the Week Sharply Lower

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled sharply lower Friday afternoon, retreating from Thursday's hefty gains on speculation U.S. crude oil imports and inventory are likely to rebound next week after data issued Thursday showed a surprisingly huge draw of 14.5 million bbl during the week-ended Sept. 2.

The steep stock draw was caused by last week's Hurricane Hermine that disrupted oil production in the Gulf of Mexico and delayed loadings of imported oil in the Gulf Coast.

"The crude stock draw will correct itself because the ships that didn't bring [supply] last week have been doing so this week, so we shall see a build in the data to be released next week," said analyst Phil Flynn at Price Futures.

The oil futures selloff today was also underpinned by a stronger dollar, and risk-off trade that caused the biggest drop in global equity markets since June 23 when Britain voted to leave the European Union. The broader selloff was reportedly triggered by delayed reaction to Thursday's comments from the European Central Bank suggesting there won't be additional stimulus spending going forward.

The Dow Jones Industrial Average, a measure of investor sentiment, tumbled nearly 400 points or 2.1% today, as investors sold company shares to buy the U.S. currency, which is considered a safe asset class because it's backed by the government. A stronger greenback is bearish for oil futures.

NYMEX October West Texas Intermediate crude futures settled $1.74 lower at $45.88 bbl while up $1.44 or 3.2% on the week. November Brent futures on the IntercontinentalExchange settled down $1.96 at $48.01 bbl while up $1.18 or 2.5% on the week.

NYMEX October ULSD futures dropped 5.18cts to a $1.4304 gallon settlement while up 2.08cts or 1.5% versus a week ago. NYMEX October RBOB futures fell 5.54cts to $1.3611 gallon at settlement, while posting a 5.95cts or 4.6% gain for the week.

Also pressing down the futures complex, Baker Hughes Inc. reported today that the number of active U.S. rigs for oil drilling increased by seven this week to 414 while down 238 on the year. It follows EIA's weekly report on Thursday showing U.S. crude production fell 30,000 to an 8.458 million bpd two-month low last week.

Traders continued to mull over the prospect of the Organization of Petroleum Exporting Countries agreeing to limit production in concert with other major non-OPEC producers such as Russia. In a move to revive an output freeze initiative initially considered early this year, Russia and Saudi Arabia on Monday announced a deal to coordinate their efforts during a G-20 meeting in China.

The Saudi-Russia pact followed an Aug. 8 OPEC announcement of informal talks to stabilize the market to be held parallel to an International Energy Forum meeting set for Sept. 26-28 in Algiers. However, the market doubts there will be deal to freeze output since there have been conflicting OPEC statements and some of those countries pushing for an agreement are currently producing near record high levels.

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