Oil Closes the Week Higher

CRANBURY, N.J. (DTN) -- Nearest delivered oil futures traded on the New York Mercantile Exchange rallied late session Friday after Thursday's selloff while mixed on the week, with a drop in the U.S. dollar from a nearly seven-week high late day lending upside price support for West Texas Intermediate crude futures.

Today's higher close for WTI futures continues the sideways trading pattern for the crude contract that's supported by production cuts by the Organization of the Petroleum Exporting Countries while pressured by climbing U.S. crude output, which increased to a nearly one-year high last week at 9.032 million bpd.

"The range in crude oil futures, between 52.00 handle and the 55.00 handle, is likely reaching a boiling point," said Dan Hussey, market strategist with Chicago-based RJO Futures, in a weekly note, adding that while in this range trading is "treacherous."

The Commodity Futures Trading Commission's Commitment of Traders report shows noncommercial traders reached a record high net-long position of 556,607 contracts on Feb. 21. Data released this afternoon showed the speculator trade group reduced their exposure for higher prices during the week ended Tuesday (2/28) by 31,353 contracts for net-length of a still high 525,254 lots.

Nearest delivered WTI futures sunk to a $52.54 bbl three-week low Thursday on building U.S. crude supply, which reached a record high of 520.2 million bbl on Feb. 24, according to the Energy Information Administration, and a report from Russia's oil ministry showing the country is not fulfilling its commitment to cut its crude production by 300,000 bpd.

"[C]onfidence in Russian compliance with its pledge cut fell with today's announcement of February production results," said Wakefield, Mass.-based Energy Security Analysis, Inc. on Thursday, with Russian oil production unchanged in February from January at 11.11 million bpd.

Russia and 10 non-OPEC oil producing countries agreed to cut 558,000 bpd in crude production during the first six months of 2017 in concert with OPEC production cuts of 1.2 million bpd.

Strong compliance by OPEC in meeting their quota has so far underpinned price support, with OPEC compliance holding above 90% in large part to Saudi Arabia, with the kingdom making deeper cuts to its output then pledged in November. Major wire services out late this week suggest the Saudis have cut 694,000 bpd from the December production rate to 9.78 million bpd in February, more than their 486,000 bpd pledge.

Fresh fighting in OPEC member Libya near the north African nation's oil exporting terminals also buoyed oil futures today, with Libya exempt from the OPEC production agreement. A Bloomberg survey on Thursday suggested Libya output at 700,000 bpd in February.

A counterintuitive reaction in currency trade following hawkish comments by Federal Reserve Chair Janet Yellen regarding an increase in the federal funds rate in a speech in Chicago this afternoon also lent upside support for WTI futures.

Yellen capped off a week of comments from several Fed officials signaling strong support that a rate hike would be made when the Federal Open Market Committee meets on March 14-15. It would mark the third increase since rates were dropped to near zero in response to the Great Recession, with the most recent taking place in December.

Higher rates should be bullish for the U.S. dollar, although it looks like traders sold into the bullish news following the Wednesday-Thursday rally. The dollar and WTI futures have an inverse relationship since crude oil trades globally in dollar denominations.

The weaker dollar worked to mute the most recent data on drilling activity by Baker Hughes Inc., with the oil service provider reporting a seven rig increase in the number of rigs drilling for oil in the United States this week to 609. Drillers have added 84 oil rigs so far this year, with the number of oil rigs at their highest point since early October 2015.

NYMEX April WTI futures settled up 72cts at $53.33 bbl while down 66cts on the week. May Brent crude futures traded on the IntercontinentalExchange gained 82cts with a $55.90 bbl settlement, while down 9cts on the spot continuous chart this week. The April Brent contract expired Tuesday afternoon.

NYMEX April ULSD futures reversed off a $1.5741 gallon fresh three-month low on the spot continuous chart to settle up 1.45cts at $1.5936 gallon. On the week, nearest delivered ULSD futures are down 4.68cts or 2.9%, with the March contract expiring on Tuesday.

NYMEX April RBOB futures held to inside trade today, settling up 0.98cts at $1.6531 gallon. On the week, nearest delivered RBOB futures advanced 13.83cts or 9.1% amid the transition to the spring gasoline season with the expiration of March RBOB futures on Tuesday. April RBOB futures rolled into the nearest deliver position at a more than 20.0cts premium to the now expired March contract, trading at a $1.7257 gallon 1-1/2 year high on the spot continuous chart on Wednesday before leaking lower on bearish fundamentals.

On Wednesday, the EIA showed gasoline supplied to market holding well below the 2016 pace so far into the year, down 534,000 bpd or 6.0% cumulatively through Feb. 24 at 8.451 million bpd. U.S. gasoline supply hit a record high of 259.1 million bbl on Feb. 10, with EIA reporting stocks at 255.9 million bbl as of Feb. 24.

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