Oil Futures Settle Lower Friday

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled lower Friday after falling to three-week lows under selling pressure from technical factors, uncertainty over the French elections and concern about the relentless increase in U.S. oil output that has undercut efforts by the Organization of the Petroleum Exporting Countries to bring the global market back into a supply-demand balance.

The futures complex had weakened at the start of the session but the selloff accelerated after the spot-month contracts for NYMEX West Texas Intermediate crude futures, ULSD, RBOB futures and Brent futures on the IntercontinentalExchange slipped below their respective retracement support points.

"The market had been under pressure most of the week but it accelerated down today after WTI broke below $50 psychological support, and closed there, which is not positive, and it attracted speculative liquidation selloff," said Tim Bentz, vice president for energy derivatives at ABN AMRO.

The latest rig count report from Houston-based oil services firm Baker Hughes, Inc. signaled oil production in the United States continued to increase this week only added to the bearishness, said Bentz and other analysts.

The Baker Hughes report showed the number of active U.S. rigs rose for the 14th straight week to 688, up five this week to the highest level in nearly two years, bringing the increase in oil rigs deployed into the U.S. oil patch this year to 163. The oil rig count is up 345 from a year ago.

The Energy Information Administration on Wednesday showed U.S. crude oil production rose last week by 17,000 barrels per day (bpd) to a 20-month high of 9.252 million bpd, up 299,000 bpd on the year.

Total U.S. crude inventories at 532.3 million barrels (bbl) on April 14 were 25.0 million bbl higher versus a year ago and 126.8 million bbl above their five-year average, according to oil analyst Kyle Cooper at IAF Advisors.

On products, gasoline stocks rose unexpectedly while distillate supply fell, with the data showing implied demand for both distillates and gasoline fell as well. Due to the bearish fundamentals, the attempt by OPEC to jawbone prices higher this week failed.

Saudi Arabian oil minister Khalid al-Falih on Thursday said six of the 13 countries that are OPEC members have agreed to extend production cuts of 1.2 million bpd that was implemented Jan. 1 and runs through June 30. They are Saudi Arabia, Kuwait, Qatar, UAE, Oman and Bahrain that are members of both OPEC and the Gulf Cooperation Council.

Falih was careful to add that there is no agreement yet among the entire OPEC membership and that non-OPEC Russia remains reluctant to go along. Falih also suggested that even if there is an agreement by OPEC, the extension of the cuts might not be for six additional months as most analysts and traders think.

Russia and 10 other non-OPEC nations agreed last year to cut their output by 558,000 bpd, with Russia accounting for 300,000 bpd of the cuts. But the Russians have only met 250,000 bpd of the pledge.

Bentz said the production cuts have so far balanced demand and production, but crude inventories that swelled even before the quota scheme was implemented in January have not been brought down to their five-year average. Thus, OPEC needs to extend the cuts for six more months after their June 30 expiration, he added.

Bentz said there's uncertainty in the market ahead of the first round of French presidential elections scheduled for Sunday, April 23, with a terrorist attack in Paris Thursday clouding sentiment. The election has focused trader attention on the future of the euro, with both left and right leaning candidates campaigning on getting France out of the European Union, following the lead of the British.

"The market is nervous about the possibility of the extreme candidates winning, so traders are squaring their positions not only in oil but also in the financial markets," said Bentz.

June WTI crude futures settled $1.09 lower at $49.62 bbl after rolling into the front-month contract position following the May contract's expiration Thursday. The spot-month WTI contract broke down support at $50 and settled below the psychologically important level. The WTI contract posted a $49.20 three-week spot low, and was down 6.7% for the week, the biggest weekly loss in a month.

IntercontinentalExchange June Brent crude settled $1.03 lower at $51.96 bbl after knocking down support at $52.56 and posting a three-week spot low of $51.57. The contract is down 7% for the week, with the trans-Atlantic arbitrage shrinking 38 cents to a $2.34 bbl premium over WTI, the lowest in three weeks.

NYMEX May ULSD futures settled 2.56 cents lower at $1.5533 gallon, off a three-week low of $1.5427 after punching through support at $1.5485 and losing 5.8% on the week. NYMEX May RBOB futures lost 2.60 cents to $1.6445 gallon at settlement, off a $1.6390 three-week spot low after breaking below support at $1.6420. The RBOB contract lost 5.2% this week.

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