Oil Extends Gains in Friday Trade

NEW YORK (DTN) -- New York Mercantile Exchange oil futures extended gains Friday morning following a two-day rally amid hope the oil market would tighten if domestic crude oil stocks continue to be drawn down with improving fuel demand, while the Organization of the Petroleum Exporting Countries and 11 non-OPEC producers are now expected to rollover their 1.8 million bpd in ongoing production cuts for six more months.

The crude contracts were consolidating within Thursday's trade range while oil products registered fresh highs. June West Texas Intermediate crude futures are on course for weekly gains of about 3.6% as supply data issued this week are being scrutinized, and ahead of a report by oil services firm Baker Hughes, Inc. that’s expected to show a 17th straight increase in the number of oil rigs deployed in the U.S. oil patch.

The rigs report for the week-ending May 12 is due out near 1:00 PM ET, with the report indicating the direction of domestic oil production. Last Friday, Baker Hughes showed the number of rigs in the U.S. rose for the 16th straight week to a two-year high of 703 during the week-ended May 5, up 375 versus a year ago. Since the start of the year, the industry has added 178 oil rigs and 229 since Nov. 30, 2016 when OPEC agreed to cut production by 1.2 million bpd.

At 9:00 AM ET, NYMEX June WTI crude futures were 15cts higher at $47.98 bbl, near Thursday’s $48.83 better than one-week high. The July Brent crude futures on the IntercontinentalExchange advanced 26cts to $51.03 bbl, off a $51.16 better than one week high posted a day prior. NYMEX June ULSD futures gained 1.39cts to $1.5038 gallon, near a $1.5056 1-1/2 week high. June RBOB futures rose 1.96cts to $1.5818 gallon, near a better than two-week high of $1.5839.

On fundamentals, the Energy Information Administration midweek showed total U.S. petroleum demand rose over 20 million bpd in the week-ended May 5, which is supportive, with gasoline demand up 252,000 bpd on the week at 9.408 million bpd.

Total petroleum inventories fell 4.1 million bbl and crude production increased by 21,000 bpd to 9.314 million bpd in the week-ended May 5. The increase in domestic crude production is impeding OPEC’s goal of reducing excess global oil supply. Year-on-year total crude oil surplus was cut down to 14.0 million bbl last week versus 15.7 million bbl the week prior after a 5.2 million bbl crude stock draw, EIA showed.

Globally, OPEC’s Monthly Oil Market Report for May released Thursday was mixed, as it revised up by 373,000 bpd for non-OPEC supply growth to a rate of 950,000 bpd and a total of 58.25 million bpd for 2017.

On the other hand, OPEC revised world oil demand in 2016 higher by 65,000 bpd to reflect the most recent data, saying world oil demand grew at a 1.44 million bpd to average 95.12 million bpd in 2016. For 2017, demand growth is estimated at 1.27 million bpd, unchanged from the prior report, with total demand expected at 96.38 million bpd.

OPEC is set to meet on May 25 to formally signoff on their plan to rollover production cuts, with non-OPEC Russia expected to provide support for the extension that’s now seen as key to rebalancing the market.

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