Oil Futures Eke Out Small Gains

CRANBURY, N.J. (DTN) -- Nearest delivered oil futures traded on the New York Mercantile Exchange edged up Friday and were shallowly mixed on the week, and with the exception of the RBOB contract, held to the lower end of a lower trade range after week prior's downside breakout.

Oil futures failed to get much upside traction Friday despite the strongest indication yet that the Organization of the Petroleum Exporting Countries would consider extending their six-month production cut agreement that expires June 30 for another six months. Saudi Arabia, which last week at a conference in Houston cautioned U.S. oil companies not to expect an automatic extension of their production cuts, expressed a willingness to consider a longer term for the agreement when they meet May 25 should global oil inventory fail to be drawn down. Russia's oil minister echoed the sentiment.

OPEC agreed to a 1.2 million-barre-per-day (bpd) production cut for an output rate of 32.5 million bpd for the first six months of 2017, joined by 11 non-OPEC oil producing countries that agreed to cut output 558,000 bpd. On Wednesday, the International Energy Agency reported strong compliance by OPEC during January and February at 98%, shouldered primarily by Saudi Arabia with a 135% compliance rate. Non-OPEC, however, achieved a 37% compliance rate during the first two months of the agreement, IEA found. Russia accounts for 300,000 bpd of the 558,000 bpd in non-OPEC cuts.

West Texas Intermediate futures also had a muted reaction to the afternoon release of weekly rig count data from Baker Hughes, Inc., with the oil services company reporting a 14-rig increase in the U.S. oil rig count for the week ended Friday. It was the ninth consecutive week in which oil companies deployed rigs in the United States, with the oil rig count at a 631 nearly 18-month high. The industry has added 106 rigs seeking oil so far in 2017, with the oil rig count up 244 from year prior.

U.S. crude production has increased 163,000 bpd so far in 2017 through March 10 and is up 412,000 bpd since OPEC reached their agreement lowering output to a 9.109 million bpd one-year high, according to the Energy Information Administration.

NYMEX April WTI, which expires at the close of business Tuesday, March 21, settled at $48.78, up 3 cents on the day and 29 cents on the week. May WTI futures edged 7 cents higher on the session and 28 cents on the week to settle at $49.31 bbl.

"While crude has confirmed its heading lower in the near term, after breaking down and out of the 56-52 range it found for the first quarter of 2017, it's important to remember that crude oil has generally been in a range above 40 but below 60 for considerably longer," noted Dan Hussey, market strategist with RJO Futures, in weekly commentary.

May Brent crude on the IntercontinentalExchange was flat on the session, up 2 cents, and a modest 39 cents higher on the week at $51.76 bbl.

NYMEX April ULSD futures gained 0.42 cent on the session and 0.49 cent from prior Friday with a $1.5085 gallon settlement. NYMEX April RBOB futures edged up 0.47 cent to settle at $1.5989 gallon Friday, while down a fractional 12 points on the week.

RBOB futures have slid from a $1.7257 gallon 18-month high on the spot continuous chart registered March 1 as the April contract rolled into the nearest delivered position that signals the transition to lower RVP gasoline to a $1.5623 gallon low on Tuesday, March 14, as high inventory and restrained demand sap support from the preseason rally.

U.S. gasoline inventory has been drawn down from a 259.063 million barrel (bbl) record high reached Feb. 10 to 249.279 million bbl on March 10, EIA reports, now 3.4 million bbl below the comparable year-ago period. The drawdown in gasoline supply should continue through April amid seasonal refinery maintenance, with the run rate at 85.1% of refinery utilization during the week-ended March 10.

However, preliminary data from the EIA shows implied gasoline demand at 8.617 million bpd cumulatively through March 10, down 458,000 bpd, or 5.0%, versus the comparable year-ago period.

The lack of year-on-year growth in domestic gasoline demand coupled with high inventory has weighed on gasoline prices. The price cap in RBOB futures after surging at the outset of March comes despite strong consumer sentiment, which typically boosts driving and consumption.

Early Friday, the University of Michigan released their Index of Consumer Sentiment that showed a 1.3% increase to 97.6 in early March while up 7.3% from year prior, holding at a 13-year high.

"The overall level of consumer sentiment remained quite favorable in early March due to renewed strength in current economic conditions," said Richard Curtin, Surveys of Consumers chief economist, noting, "Optimism promotes discretionary spending, and uncertainty makes consumers more cautious spenders."

Brian L. Milne can be reached at brian.milne@dtn.com

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