Oil Futures Settle Lower on Supply Glut

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled lower Friday afternoon on building oil supply domestically and globally, with fresh disputes within the Organization of Petroleum Exporting Countries on oil production policy adding to bearish sentiment.

The oil futures complex plunged to more than one-month lows across the board earlier this morning after a report said Saudi Arabia threatened to boost its crude oil production if other OPEC members refuse to agree on a plan to cut oil production at the end of this month. However, the market pared some of the losses after the head of OPEC denied that report.

The market retraced its path lower again in early afternoon trade after Baker Hughes, Inc. released its weekly report showing the number of oil and gas rigs in the United States increased by 12 to 569 this week, while the number of active oil rigs increased by nine to 450 and to a nine-month high.

"The market was nervous going into the weekend because of OPEC and the presidential elections coming next week," said analyst Phil Flynn at Price Futures. "The jobs report was supposed to strengthen the dollar but it didn't. The market is not sure what to do."

Flynn added that the OPEC story is interesting "because the Saudi threat to increase output used unnamed sources and the only person named in the report was the OPEC secretary general who denied the story, so who do you believe?"

At settlement, NYMEX December West Texas Intermediate crude oil futures were down 59 cents to $44.07 per barrel (bbl), off a $43.57 six-week low and tumbled $4.63 or 9.5% for the week. ICE January Brent futures fell 77 cents to $45.58 bbl at settlement and closed down $4.13 or 8.3% for the week.

NYMEX December ULSD futures settled 2.79 cents lower at $1.4303 gallon, and posted an 11.19 cent loss for the week. The December RBOB futures contract plummeted 4.59 cents to $1.3786 gallon at settlement and finished the week down 9.05 cents.

The market was off to a weak start this morning, accelerating a selloff on doubts OPEC would cut production and on a so-so October nonfarm payroll report that raised the prospect of an interest rate hike next month by the Federal Reserve.

The Bureau of Labor Statistics report showed the 161,000 new jobs were added in October, with August and September data revised higher by a combined 44,000 jobs.

Also, the unemployment rate ticked down 0.1% to 4.9% while hourly wage gains rose 0.4% for the month and 2.8% over the 12-month period, the fastest increase since 2009 and a sign the economy is picking up.

Whether the Fed decides to raise rates next month will also depend on the outcome of next week's U.S. presidential elections. The race has tightened in the past week, rattling financial markets.

On domestic supply, the Energy Information Administration's midweek oil data showed a 14.4 million bbl build in domestic crude oil stocks to 482.6 million bbl last week, up 7.1% versus year prior.

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