Oil Little Changed on Friday

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures were little changed at settlement after a technically-driven sideways trading session, as a tug-of-war between building domestic oil supply and declining global oil production continued.

Analysts said rising U.S. supply continues to weigh against production cuts by the Organization of the Petroleum Exporting Countries and 11 other producing countries that are not members of the oil cartel.

"We've had big builds in stocks this week driving the market down but then crude is still range-bound at $50 to $55, and it found support at $52," said Tom Bentz, vice president for energy derivatives at ABN AMRO. "It looks like this sideways pattern of trade will continue for a while even as we continue to build stocks here in the U.S. At some point, crude will have a break to the downside and the funds that are long will start to liquidate."

The latest evidence that domestic supply would continue to grow came this afternoon from Baker Hughes, Inc., with the oil services company reporting the addition of six oil rigs in the United States this week to a 16-month high of 597. Seventy-two oil rigs have been added in the United States so far this year.

A rising rig count follows the Energy Information Administration's report midweek showing domestic crude output at an 8.977 million bpd 10-month high as of the week-ended Feb. 10 with crude stocks 9.6% higher than a year ago.

Providing upside support for the market is strong compliance by OPEC with output cuts agreed to last year that continues to boost sentiment. OPEC and its 11 non-OPEC allies agreed to cut 1.758 million bpd in oil production from Jan. 1 to June 30. News reports this week said the cartel is considering extending the cuts through rest of the year.

Bentz said while OPEC appears to be propping up oil prices by leaking stories to the media about a possible extension of the supply cuts, the cartel may have no alternative but to do just that if U.S. oil supply continues to increase.

"At the moment, it's all about psychology but they will have to extend it otherwise crude prices won't hold at these levels for long," he said. "Look at gasoline… RBOB is the weakness segment of the oil futures complex because we are sitting on historically high inventory."

Phil Flynn, an analyst at Price Futures, echoed those comments and said the spot-month WTI futures contract edged higher today partly because the rig count report issued today showed a smaller increase in the number of active rigs than the market expected.

"We were looking for a bigger increase, so to that extent you could say an increase of only six rigs was supportive for WTI," said Flynn. He added that since March WTI expires Tuesday (2/21), some traders wanted to cover their positions ahead of the three-day weekend break.

NYMEX March West Texas Intermediate futures settled up 4cts at $53.40 bbl, but posted a 46cts weekly loss that was the first weekly decline in five weeks. The April contract was up 3cts at $53.78 bbl.

On the IntercontinentalExchange, April Brent crude futures gained 16cts to $55.81 bbl at settlement, down 89cts for the week. NYMEX March ULSD futures eked a 0.73cts gain to $1.6364 gallon and posted a weekly loss of 2.95cts. NYMEX March RBOB futures eased 0.81cts to $1.5166 gallon, off a $1.4857 fresh one-week low while ending the week little changed.

Financial markets will close on Monday for the Presidents Day holiday.

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