Oil Futures Mixed

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled shallowly mixed Tuesday afternoon after relinquishing early gains, with West Texas Intermediate crude edging higher, while RBOB and ULSD futures reversed lower after a report projected a hike in oil shale production in the United States.

The Energy Information Administration projected in its monthly Drilling Productivity Report issued this afternoon that production from seven major U.S. oil shale plays would increase 41,000 bpd to 4.748 million bpd in February 2017 from January 2016.

Oil output from the Permian Basin, which covers parts of western Texas and southeastern New Mexico, is expected to see the largest increase among the big shale plays, projected to rise by 53,000 bpd, the report said.

"The oil market fell within minutes of the report being released just before the close," said analyst Phil Flynn at Price Futures. "The drilling report took away the momentum [from the upside] we had this morning from what the Saudis said."

NYMEX February West Texas Intermediate futures settled up 11 cents at $52.48 bbl, easing off a $53.52 one-week spot high posted earlier. The March Brent crude futures contract on the IntercontinentalExchange fell 31 cents to $55.47 bbl, reversing off a $56.95 one-week high.

NYMEX February ULSD futures rallied to a $1.6957 gallon one-week high before reversing to close 0.28 cents lower at $1.6486 gallon. February RBOB futures climbed to a $1.6624 gallon two-week high but pivoted off that session benchmark to settle 1.13 cents lower at $1.6004 per gallon.

Oil futures had rallied to better-than one-week highs early this morning after the dollar weakened and senior Saudi Arabian oil officials said that ongoing production cuts were bringing market supply and demand into balance.

Amir Nasser, chief executive of Saudi Aramco, said he expects oil markets to rebalance by mid-2017 after production cuts by the Organization of Petroleum Exporting Countries and 11 non-OPEC oil producers went into effect on Jan. 1, with the cuts scheduled to run through June 30.

Similar sentiments were also expressed by Saudi Energy Minister Khalid al-Falih, who also pledged on Monday that the Kingdom would continue to comply with last year's agreement to cut output.

"We see the Saudis as trying to tell both a bullish story of how producers have trimmed output even beyond their commitments," said analyst Tim Evans at Citi Futures.

However, skeptics say the cuts won't bring a mid-year supply-demand balance, citing OPEC's history of noncompliance with production cuts and Russia's past decisions to walk away from their supply agreements.

Moreover, OPEC countries exempted from the Nov. 30 agreement such as Libya and Nigeria are expected to increase their output. Libya said its production rebounded over the weekend to around 700,000 bpd after dipping last week due to a power outage in western part of the country. Libya plans to double its output this year. The OPEC nation produced 1.6 million bpd in 2011 but its supply has been curtailed by militant attacks in recent years.

Market focus will turn to weekly U.S. oil supply, with EIA set to issue its report on Thursday, a day after the American Petroleum Institute publishes its data.

In currency trade, the U.S. dollar index fell to a five-week low overnight after President-elect Donald Trump said the dollar is too strong, making U.S. companies less competitive against their Chinese counterparts.

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