NEW YORK (DTN) -- Spot-month New York Mercantile Exchange oil futures rallied to higher settlements Friday amid rising tension between the United States and Iran and the prospect of tighter global supply by midyear as the Organization of the Petroleum Exporting Countries and their non-OPEC partners implement production cuts agreed to late last year. Those two factors overshadowed a Baker Hughes report showing an increase of 17 rigs drilling for oil in the United States.
The oil futures complex vacillated on either side of Thursday's settlements early in the session as concern over excess U.S. petroleum supply weighed against early signs of geopolitical tension, a strong jobs data and OPEC's high compliance rate with their oil production quotas.
The complex got a boost in afternoon trade after President Donald Trump signed an executive order imposing sanctions on some Iranian individuals and entities with the sanctions coming a day after the White House put Tehran on notice over Tehran's ballistic missile test that was conducted on Sunday.
Trump had also warned on Twitter that "Iran is playing with fire" after its missile test. Under the sanctions, 13 individuals and 12 Iranian entities cannot access the U.S. financial system or deal with U.S. companies.
For its part, Iran denounced the sanctions, and said it would impose legal restrictions on American individuals and entities. Analysts said the market has taken note of the rising geopolitical tension since Trump became president.
Trump has talked tough on security, and had frank exchanges in phone calls with leaders of Mexico and Australia, and this morning issued a warning to North Korea. Analysts said Trump's temperament is going to be tested by Iran, North Korea, and possibly Russia and China.
"Crude is still within the recent trading range but we've now seen how the tension between the U.S. and Iran is providing geopolitical support to crude," said Tom Bentz, vice president for energy derivatives at ABN AMRO. "In general, Trump's talking of wanting to undo the nuclear deal with Iran keeps the underlying tone bullish because there's potential for something to spark."
He added, "On fundamentals, the market is bullish despite the fact that U.S. rig count and petroleum inventories are high. Outside the U.S., there is not much excess supply and people are hopeful that OPEC will achieve a balanced market by midyear."
A number of reports this week showed OPEC has achieved a compliance rate of more than 80% on its planned cuts totaling 1.2 million bpd while 11 non-OPEC producers that planned to cut output by 558,000 bpd have not indicated their compliance rate. Russia has cut a third of the 300,000 bpd output it pledged to cut.
NYMEX March West Texas Intermediate futures settled up 29cts to $53.83 bbl while gaining 66cts for the week. ICE April Brent crude futures edged up 25cts to a $56.81 bbl settlement while climbing $1.29 for the week.
NYMEX March ULSD futures gained 1.33cts to a $1.6651 gallon settlement and posted a weekly gain of 4.62cts. March RBOB futures increased 2.08cts to a $1.5537 gallon settlement while up 2.66cts for the week.
On the economy, the employment report from the Bureau of Labor Statistics showed better than expected job growth of 227,000 for the U.S. economy last month while the unemployment rate ticked up to 4.8% as the civilian labor force increased. January's job growth was the best since June and suggests the U.S. economy is on sound footing, which would support fuel demand, analysts said.
George Orwel can be reached at firstname.lastname@example.org
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