Oil Retreats in Friday Trade

Oil Retreats in Friday Trade

NEW YORK (DTN) -- Spot-month New York Mercantile Exchange oil futures retreated at the start of regular trade Friday morning on profit-taking after Thursday's rally and in front of industry data on U.S. weekly rig count that's expected to show another increase in oil drilling in the United States.

Baker Hughes, Inc. is set to release its rig count report for the week-ended today early this afternoon. The prior rig count report for last week showed six more rigs added to 597, the highest in over 16 months with 72 added so far this year, helping boost U.S. crude production.

The Energy Information Administration reported U.S. crude inventories added a less-than-expected 563,000 bbl in the week-ended Feb. 17, the seventh straight weekly crude stock build that boosted total supply to a record 518.7 million bbl, and 9% above year prior levels.

Moreover, the federal report showed domestic crude production climbed 24,000 bpd to a 9.001 million bpd 10-month high last week while crude demand fell 187,000 bpd as the refinery utilization rate fell 1.1% to 84.3% of operable capacity.

Despite the production increase, most analysts thought the report was bullish, citing the 1.6 million bbl decline in crude supply at Cushing, Oklahoma, the delivery location for NYMEX West Texas Intermediate crude futures.

The EIA's products data showed bigger-than-expected stock draws for both gasoline and distillates, and massive increases in demand last week, but year-over-year demand was down 9.5% for gasoline but up 16% for distillates.

The overnight sell-off in oil futures was also driven by technical resistance and doubts about how long the Organization of Petroleum Exporting Countries will stay united in their efforts to rebalance the market this year.

Those doubts were triggered after Iran on Thursday said the peak price for oil this year may have been reached already and any prices above $55 bbl for WTI and $58 bbl for Brent could make OPEC oil less competitive in the global market and could even lead to demand destruction.

Analysts interpreted those comments to mean Iran, which is exempted from the current supply cuts, does not want to start cutting its production as it approaches 4 million bpd output.

Technically, there is a strong resistance for NYMEX WTI futures at $55 bbl and for Brent futures on the IntercontinentalExchange at $58 bbl, with support at $50 and $53, respectively, said analysts.

In early trade, April WTI futures fell 49cts to $53.96 bbl while April Brent eased 63cts to $55.95 bbl. NYMEX March ULSD futures fell 1.99cts to $1.6368 gallon and NYMEX March RBOB futures fell 2.51cts to $1.5035 gallon.

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