NEW YORK (DTN) -- New York Mercantile Exchange oil futures rallied Friday on expectations the Organization of Petroleum Exporting Countries will agree at a meeting next week to prolong production cuts beyond June.
The spot-month West Texas Intermediate crude contract settled above $50 for the first time in a month, with both June WTI and July Brent contract on the ICE platform trading intraday at one-month highs while posting weekly gains of more than 5.0%. This is the second straight week of gains across the oil complex.
The OPEC ministerial summit set for May 25 in Vienna will likely rubber stamp an agreement reached last Monday by Saudi Arabia and Russia to continue with their 1.8 million bpd in oil production cuts the cartel and its allies have implemented since January.
Saudi Arabia and Russia agreed on the need to keep the current cuts in place until March 2018. While not an OPEC member, Russia is the world's top oil producer and has been negotiating with the Saudis on extending production cuts on behalf of 11 non-OPEC producers.
A panel of OPEC officials met Thursday to review options in preparation for the May 25 ministerial summit. Reuters reported the preparatory meeting was called to consider deepening and extending the cuts. OPEC has invited other non-OPEC producers who are not part of the current quota scheme to attend next week's summit, a sign they want to deepen the cuts so as to quicken the pace of market rebalancing.
The pace of reducing global surplus has been slowed by recent increases in U.S. crude production and higher inventories. However, the latest Energy Information Administration's report issued on Wednesday showed the U.S. oil surplus is tightening.
The EIA data showed total domestic crude oil stocks at 520.8 million bbl after a 1.7 million bbl drawdown that narrowed the year-over-year surplus to 2.2% during the week-ended May 12, and crude production fell for the first time in 13 weeks.
Friday's upside for oil futures was curbed however after oil services firm Baker Hughes, Inc. issued a report for the week-ended May 19, showing the oil rig count in the United States rose by eight to 720, the 18th consecutive week in which rigs were added to the oil patch.
Meantime, closing above $50 for June WTI is a psychological boost for the market after the contract break above $49.50 resistance, setting the stage for a test of next resistance at $50.85.
"A $50 close is a big deal heading for the weekend," said analyst Phil Flynn at Price Futures Group in Chicago. "It puts WTI on a higher trading range now."
"This is definitely positive after last week's correction," said analyst Tom Bentz at ABN AMRO in New York. "It seems like optimism has returned and hedge funds are back in the market adding length in oil futures."
At settlement, NYMEX June WTI crude futures were 98cts higher at $50.33 bbl, edging off a $50.49 one-month high and posted a $2.49 or 5.2% gain for the week.
ICE July Brent crude futures climbed $1.10 to $53.61 bbl, off a $53.74 one-month spot high, gaining $2.77 or 5.45% for the week. The Brent premium to WTI increased 12cts on the day and 28cts on the week to a $3.28 bbl two-month high.
NYMEX June ULSD futures jumped 3.74cts to a $1.5827 gallon settlement, near a
$1.5897 one-month spot high while up 8.94cts or 6% on the week. June RBOB futures spiked 4.60cts to $1.6523 gallon at settlement, near a $1.6544 better than three-week spot contract high. The contract gained 7.62cts or 4.8% for the week.
Also supporting oil futures were a weaker U.S. dollar and worries over Iranian elections today that could hand over presidential power to a hardliner bent on antagonizing the West. The dollar index fell to a better than six-month low.
George Orwel can be reached at George.email@example.com
© Copyright 2017 DTN/The Progressive Farmer. All rights reserved.