Oil Futures Lower on Rigs Report

NEW YORK (DTN) -- Spot-month New York Mercantile Exchange oil futures settled lower Friday afternoon after the latest report by oil services firm Baker Hughes showed another big jump in the oil rig count in the United States that highlighted rising domestic oil production.

The report issued early Friday afternoon showed the number of active oil rigs increased by 15 this week to 566, the most in more than a year, with 41 oil rigs added so far in January. The increase followed last week's 29 jump in the oil rig count, the most in nearly four years.

The market was already under pressure early due to profit-taking from Thursday's rally, and the Baker Hughes report confirmed what analysts expected and took the focus away from expectations for tightening global supply.

Market focus has shifted between global production, with the Organization of the Petroleum Exporting Countries and 11 non-OPEC oil producer countries reducing their output, and domestic supply throughout this week. At 8.961 million barrels per day (bpd), U.S. crude production is at a nearly 10-month high, data from the Energy Information Administration shows.

"At the moment, the oil market is very headline-driven," said David Thompson, executive vice president at Powerhouse, a Washington, D.C.-based brokerage. "The Baker Hughes rig count report has tilted it towards the bearish side today, but that is subject to change if OPEC reports over compliance on their cuts."

At settlement, NYMEX March West Texas Intermediate futures fell 61 cents to $53.17 bbl while up 75 cents for the week, having reversed off a three-week high of $54.08 on the spot continuation chart. The ICE March Brent crude futures contract dropped 72 cents to $55.52 bbl and was little changed for the week. NYMEX February ULSD futures settled 2.20 cents lower at $1.6189 gallon, off a $1.5981 near two-month spot low, and down 2.7 cents for the week. February RBOB futures settled 1.56 cents lower at $1.5271 gallon while down 3.89 cents for the week.

In recent weeks and especially at the start of this week, sentiment was bullish on evidence OPEC and their non-OPEC partners were making good on their promise to reduce output pursuant to agreements reached late last year. At a meeting last on Jan. 22 in Vienna, OPEC and non-OPEC producers said they had cut production by 1.5 million barrels per day (bpd), an 85% compliance rate with their Nov. 30 and Dec. 10 agreements to trim output by a combined 1.758 million bpd. That's better than a 57% compliance rate for cuts enacted in 2009 when OPEC also agreed to lower their supply.

Saudi Arabia reportedly production to 9.9 million bpd during the first three weeks of January, down 570,000 bpd from December, surpassing the kingdom's pledge to cut 486,000 bpd. The Saudis are encouraging others to fully comply with their agreed production quotas.

However, analysts argued the cuts by OPEC and non-OPEC would be offset by the rising U.S. production. EIA data shows U.S. crude production increased 191,000 bpd during the first three weeks of 2017.

The International Energy Agency last week projected U.S. shale output would rise by 170,000 bpd this year after a decline of nearly 300,000 bpd last year, while Goldman Sachs sees shale production increasing by 265,000 bpd in 2017.

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