Oil Settles Lower Friday

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled lower Friday after posting three-week lows on concern it would take much longer than previously thought to work down bloated global oil inventories.

"The market remains impatient waiting for global inventories to draw down, and although OPEC and some non-OPEC output cuts were extended through March 2018, they are faced with more oil from Libya and Nigeria returning to the market," said Andy Lipow, president of Lipow Oil Associates in Houston.

A senior Libyan official said their oil production rose to an 800,000 bpd 2-1/2 year high this week, and they expect to boost their supply to 1.1 million bpd production by August, although that's still short of the 1.6 million bpd output rate seen in 2011.

In Nigeria, the Forcado field resumed operation after a several month outage, with the OPEC member's production up 50,800 bpd to 1.5 million bpd in April, while below the 2005 production of 2.4 million bpd.

The market got a reminder of the prospect of growing production this afternoon when Houston-based oil services firm Baker Hughes, Inc. reported that the number of rigs actively drilling for oil in the United States increased this week by 11 to a 733 better than two-year high. This was the 20th consecutive increase in the oil rig count, and suggests domestic crude production continued to increase this week.

It comes a day after the Energy Information Administration on Thursday reported U.S. crude production rose during the week-ended May 26, up 22,000 bpd to a 9.342 million bpd 21-month high.

U.S. oil production, which has risen for 19 of the past 20 weeks, is 610,000 bpd higher than a year ago, and 1.28 million bpd above five year average.

Analysts said domestic production could increase following President Donald Trump's decision late Thursday to withdraw the United States from the Paris Climate Change accord would worsen the persistent global oversupply. Analysts said the decision to abandon the climate pact could encourage more crude oil drilling in the United States going forward.

Trump also proposed selling oil from the Strategic Petroleum Reserve starting in 2018 for the next 10 years, aiming to halve the emergency oil reserves over the period. SPR storage caverns in the Gulf Coast held 686.7 million bbl of crude oil, down 1.0 million bbl, during the week-ended May 26, data from the EIA shows.

While seasonal demand for crude and gasoline is rising as the summer gets underway, the market got a scare today when the Labor Department issued a bearish nonfarm jobs report that 138,000 jobs were added to the U.S. economy in May, falling short of a projected 185,000.

Still, the U.S. economy remains resilient, today's May jobs report showed the national unemployment rate fell 0.1% to 4.3%, the lowest it has been in 16 years.

NYMEX July West Texas Intermediate crude futures settled down 70cts to $47.66 bbl, off a $46.74 three-week spot low, testing retracement support at a $46.91. The contract was down $2.14 or 4.3% for the week.

August Brent futures on IntercontinentalExchange dropped 68cts to $49.95 bbl, off a $48.95 three-week spot low, with support at $48.54. The contract fell $2.20 or 4.2% for the week. Brent's premium to WTI closed at $2.29 bbl.

NYMEX July ULSD futures settled 1.69cts lower at $1.4848 gallon, off a $1.4634 fresh three-week spot low and below support at $1.4711. The ULSD contract lost 7.85cts or 5.0% this week. The July RBOB futures contract tumbled 2.43cts to $1.5771 gallon, breaking below support at $1.5625 with a trade at a $1.5545 three-week spot low. Spot-month RBOB futures are down 6.55cts or 4.0% for the week.

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