Oil Futures Settle Mixed Thursday

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures settled mixed Thursday after whipsaw trading as a strong U.S. dollar weighed against optimism spurred by the prospect of a tighter market next year.

The greenback rallied to a 14-year high after the Federal Reserve on Wednesday raised its overnight lending rate by 25 basis points and indicated the pace of rate hikes could quicken next year, potentially dampening market liquidity amid higher borrowing costs.

"We were selling off hard because the dollar kept going higher and higher, putting downward pressure on crude, but when Kuwait told its customers to expect supply cuts, that got people thinking they are serious about compliance [with recent OPEC agreement], and so Brent tried to come back up but WTI couldn't overcome the strong dollar," said analyst Phil Flynn at Price Futures.

The Organization of Petroleum Exporting Countries and non-OPEC reached agreements on Nov. 30 and Dec. 10, respectively, to reduce production by a combined 1.758 million barrels per day (bpd), effective Jan. 1, 2017. If those cuts are fully implemented, the currently oversupplied market would flip into a supply deficit in the first half of 2017 by an estimated 600,000 bpd, the International Energy Agency said Tuesday, Dec. 13.

But IEA warned that outcome may not happen if those cuts are not administered, with OPEC having a history of cheating on production quotas. The IEA report said that as OPEC was deciding to cut output on Nov. 30, its crude output was 34.2 million bpd, a record high and 400,000 bpd higher than in October.

Domestically, the Energy Information Administration reported midweek that crude stockpiles fell last week by 2.6 million barrels (bbl), but a year-over-year surplus remained at 5.4%, and Cushing supply hub in Oklahoma, crude supplies rose last week by 1.2 million bbl to a 66.5 million seven-month high.

At settlement, NYMEX January WTI futures were down 14 cents at $50.90 per bbl, off a one-week low at $49.95. ICE February Brent crude futures reversed off a $53.15 one-week low to settle up 12 cents at $54.02 bbl.

In products trade, ULSD futures eased 0.15 cent to $1.6420 gallon, off a four-day low of $1.6275. January RBOB futures eked a 0.90-cent gain with a $1.5421 gallon settlement, reversing off a $1.5116 four-day low.

On Friday, the market will scrutinize Baker Hughes Inc.'s weekly oil rig count data due out early afternoon.

Meanwhile, the heavily populated East Coast is bracing for an arctic blast over the next few days that would boost demand for heating oil in the Northeast. The National Weather Service is forecasting 25-degree-Fahrenheit temperatures in the New York area.

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