WTI Settles at Fresh Low

NEW YORK (DTN) -- Spot-month New York Mercantile Exchange oil futures settled lower for the third straight session Friday as liquidation of long positions gathered steam ahead of the weekend break, with the ULSD and West Texas Intermediate contracts driven to the lowest levels since November following data this afternoon showing another increase in the number of rigs drilling for oil in the United States.

Oil futures have endured an extended selloff since Wednesday; breaking out of narrow ranges after the U.S. Energy Information Administration reported an 8.2-million-barrel (bbl) build in U.S. crude inventories to a fresh record high of 526.4 million. On Friday, Houston-based oil services firm Baker Hughes, Inc. reported another weekly gain in the U.S. oil rig count, a report that snuffed out any chance of a quick recovery in oil prices, said analysts.

The Baker Hughes report showed eight more rigs were added to the oil patch this week, the eighth consecutive increase that lifted the count to 617 -- the highest number of active rigs since September 2015. This comes days after EIA showed U.S. crude production rose 56,000 barrels per day (bpd) to a better than one-year high at 9.088 million bpd during the week-ended March 3.

"After three months of range-bound trade, we finally broke to the downside as hedge funds on Wednesday began to liquidate speculative length they had been holding, and we saw that momentum selling again today, triggered by continued increase in supply," said Tom Bentz, vice president for energy derivatives at ABN AMRO. "What we've seen is that any losses in global supply as a result of OPEC production cuts have been offset by the rise in U.S. production while demand remains lackluster."

The selloff intensified during market-at-close trade this afternoon after spot-month WTI broke below support at $48.72, a price that marks the 50% retracement level of the previous uptrend from $42.20 through the high of $55.24, early afternoon.

"Does this make $60 oil a thing of the past? We don't know but certainly nobody would like to see $30 [WTI] oil," continued Bentz. "The back end of the forward curve is not moving, so there's still some optimism the market will find a balance, but it won't happen if oil companies keep expanding investments in shale oil because it defeats the purpose of what OPEC is trying to do."

Spot-month NYMEX April West Texas Intermediate futures settled down 79 cents at $48.49 bbl, off a $48.31 fresh better than three-month low on the spot continuation chart. The contract lost 9% on the week.

On the IntercontinentalExchange, May Brent crude futures lost 82 cents to a $51.37 bbl settlement, off a better than three-month spot low at $51.14, shedding 8% of its value on the week. The Brent/WTI spread ended at $2.88 bbl, with Brent's premium up 31 cents on the week, trading at the highest level in a month.

In products trade, NYMEX April ULSD futures settled 2.59 cents lower at $1.5036 gallon, off a better-than three month spot low of $1.5001, down 5.6% for the week. NYMEX April RBOB futures drifted 2.42 cents lower at $1.6001 gallon, off a $1.5919 better than one-week low, and down 3.2% for the week.

Looking ahead, analysts said the oil market could come under additional selling pressure next week if the Federal Reserve raises its federal funds rates, as expected, following a robust jobs report released today showing the economy added more than expected 235,000 jobs in February.

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