Oil Ends the Year Mixed

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures ended Friday's session shallowly mixed amid year-end book-squaring in muted pre-New Year's Day trade, with the West Texas Intermediate crude and ULSD contracts little changed while RBOB futures posted modest losses. Markets will be closed Monday in observance of the holiday.

NYMEX oil futures registered strong gains in December, rallying on bullish sentiment on expectations production cuts set to take effect on Jan. 1 and positive readings on U.S. economic data that's seen boosting demand would combine to bring the global oil market into a closer supply-demand balance. Supportive technical factors added to the upside, with oil futures ending the year at multi-month highs.

Oil futures plunged early in the year on a building supply glut, with the contracts up between 30% and 55% on the year. Those gains were spurred in large part by promised production cuts.

The Organization of the Petroleum Exporting Countries and 11 non-OPEC oil producing countries are set to implement their Nov. 30 and Dec. 10 agreements on Sunday that, during the six-month term, would cut a combined 1.758 million bpd of oil production.

OPEC and non-OPEC Russia have a checkered history in adhering to quota agreements, although the market has become less skeptical over the current agreements partly because a number of the signatories to those deals, including Saudi Arabia, Iraq, Kuwait and Russia, have sought to assure the market that they would comply with the quotas.

Today, oil services firm Baker Hughes Inc. said the number of rigs drilling for oil in the United States increased by two this week to 525, the ninth straight weekly increase and the highest level for 2016 and the most since the last week of December 2015. The oil rig count, which has seen 84 rigs put into service since the start of November, is down 11 versus the same week a year ago.

Analysts have said the effect on prices the OPEC and non-OPEC production cuts would have could be limited by producers that are not part of the agreements, notably the United States. The Energy Information Administration showed U.S. crude production averaged 8.766 million bpd during the week-ended Dec. 23, down 30,000 bpd from two weeks prior when it reached a seven-month high.

EIA shows domestic commercial crude supply at 486.1 million bbl on Dec. 23, up 600,000 bbl from the prior week, while 31.0 million bbl or 6.8% above year prior.

At the close, NYMEX January RBOB futures expired down 1.69cts at $1.6651 gallon, and the February contract settled down 0.89cts at $1.6709 gallon. The spot-month RBOB contract gained 2.4% on the week, 11.7% on the month and 31.4% on the year.

NYMEX January ULSD futures expired little changed, up 0.06cts to $1.7043 gallon, with the February contract settling up 0.82cts at $1.7282 gallon. The spot-month ULSD contract gained 2.5% on the week, 8.5% on the month and 54.8% on the year.

NYMEX February West Texas Intermediate crude futures settled 5cts lower at $53.72 bbl, up 1.3% on the week, 8.7% on the month and 45% on the year.

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