Oil Ends the Week Higher

CRANBURY, N.J. (DTN) -- Nearest delivered oil futures traded on the New York Mercantile Exchange and the spot-month Brent contract on the IntercontinentalExchange settled higher Friday, capping off a week of explosive gains of 12.0% or more following Wednesday's agreement by the Organization of the Petroleum Exporting Countries to cut production for the first time in eight years.

After spiking for two days straight through Thursday, oil futures moved lower overnight on profit taking, but reversed the decline following the morning release of a supportive employment report from the Labor Department. Oil futures consolidated within Thursday's wide trade range, with the WTI and Brent contracts settling near Thursday's highs.

OPEC's agreement to cut 1.2 million bpd of crude production starting Jan. 1, holding output at 32.5 million bpd, and joined by a 300,000 bpd cut from non-OPEC member Russia caught many in the market by surprise, triggering an aggressive wave of short covering that set trade volume records on the CME Group exchange. More upside is expected, with analyst expectations coalescing around a move to a $55 to $60 bbl trade range for WTI futures in the coming weeks.

NYMEX January WTI futures settled up 62cts at $51.68 bbl, near Thursday's $51.80 six-week high on the spot continuation chart. Nearest delivered WTI futures surged $5.62 or 12.2% from prior Friday's holiday trade session and on the year has rallied $14.64 or 39.5%. In February, WTI futures plumbed a multiyear low on the spot continuation chart of $26.05 bbl.

ICE February Brent crude, which rolled into the nearest delivery position on Thursday following Wednesday expiration of the January contract, settled up 52cts at $54.46 bbl, near Thursday's $54.53 16-month high on the spot continuous chart. Nearest delivered Brent surged $6.70 or 14.2% this week, and on the year increased its value $16.66 or 44.9%.

NYMEX January ULSD futures gained 1.02cts with a $1.6581 gallon settlement, holding below Thursday's $1.6634 15-month high on the spot continuous chart. Nearest delivered ULSD futures rallied 18.81cts or 12.8% this week, and have spiked 56.0cts or 50.6% in 2016.

NYMEX January RBOB futures advanced 1.21cts to a $1.5591 gallon settlement, holding below Thursday's $1.5732 one-month spot high that, after bypassing the Nov. 1 spike to $1.6351 in reaction to the shutdown of the main gasoline pipeline on the Colonial system, was the highest trade on the spot continuous chart in five months. From prior Friday, nearest delivered RBOB futures have jumped 18.64cts or 13.6% and 29.0cts or 23.0% on the year.

The December ULSD and RBOB futures contracts expired at Wednesday's closing bell.

The Department of Labor this morning reported 178,000 jobs were added to the U.S. economy in November that meet expectations, although the national unemployment rate declined 0.3% to a 4.6% nine-year low, arousing confidence that the U.S. economy is strengthening. Employment gains have averaged 176,000 for the past three months.

The jobs report lent support for oil products, with the futures contracts reversing higher after its 8:30 AM ET release.

The U.S. dollar, with the dollar index trading near 13-year highs initially strengthened with the jobs data before reversing lower. The dollar index, along with equities, have been in rally mode since the election of Donald Trump as the 45th president, coming ahead of the Federal Reserve's midmonth meeting with Fed officials overwhelmingly expected to hike the federal funds rate amid a strengthening U.S. economy.

On Tuesday, the Bureau of Economic Analysis said the U.S. economy grew at a 3.2% annualized rate, the greatest quarterly expansion pace since the third quarter 2014.

The weaker dollar, which eased to a two-week high lent the WTI contract upside support.

OPEC's agreement to cut production Wednesday has been called a surprise and historic. It's also seen as a boon for U.S. shale oil producers that are expected to deploy more rigs.

Baker Hughes, Inc. today reported a three rig increase in U.S. oil rigs in service this week, the fifth consecutive week with a gain. At 477, U.S. oil rigs in the field are at their highest point since late January. The Energy Information Administration on Wednesday reported domestic crude production during the Thanksgiving Day holiday week at an 8.699 million bpd 5-1/2 month high.

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

(BAS)

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