CRANBURY, N.J. (DTN) -- Nearest delivered oil futures traded on the New York Mercantile Exchange and Brent crude on the IntercontinentalExchange edged higher Friday on pre-weekend position-squaring in light trade following this week's selloff triggered by bearish weekly inventory statistics, with West Texas Intermediate down 3.8% this week, Brent and ULSD futures erasing 3.6% of their value, and RBOB futures losing 4.8% of its pricing power from prior Friday.
U.S. oil supply data for the week-ended June 2 released by the Energy Information Administration on Wednesday sparked an across the board selloff in NYMEX oil futures that pressed end-day settlements to near their lowest valuation of 2017, with Brent crude registering its lowest settlement price of the year.
The weekly data, which detailed an unexpected build in crude stocks that ended a two-month draw down and a steep decline in oil products demand, lent support to a prevailing bearish market psychology that production cuts from the Organization of the Petroleum Exporting Countries and 10 non-OPEC oil producing countries are inadequate in making a sizeable dent in bloated global oil inventories in the face of rising U.S. crude production.
"OPEC continues to make headlines, reiterating their rhetoric for continued production cuts [...], and their attempts to support this market with talk is proving too cheap. It's almost impossible to compete with the supply American and its western oil allies are able to ramp up," said Dan Hussey, senior market strategist with RJO Futures.
The current downtrend began in late May as the OPEC, non-OPEC coalition agreed to rollover nearly 1.8 million barrels per day (bpd) in production cuts that were set to expire at the end of June for nine more months through the end of the first quarter 2018. While the production cuts will prompt drawdowns from global oil inventories -- the EIA projects the decline will average 400,000 bpd in the third quarter -- Saudi Arabia and non-OPEC oil producer Russia had widely telegraphed the agreement ahead of the May 25 meeting, prompting the market to demand deeper cuts that didn't happen.
U.S. crude production has ramped up rapidly with higher crude prices this year, climbing 548,000 bpd from Jan. 1 through June 2 while up 621,000 bpd since OPEC reached their initial agreement on Nov. 30, 2016, to 9.318 million bpd, the highest output rate since August 2015, EIA data shows. And the upside has legs, with Baker Hughes, Inc. this afternoon reporting the 21st consecutive week in which rigs have been added to the U.S. oil patch, up eight through the week ended today to 741, up 267 since Nov. 30 and 216 year-to-date. The U.S. oil rig count is at its highest point in 26 months.
In their Short-term Energy Outlook released Tuesday, EIA revised higher their projection for U.S. crude production for 2018 to a 10.0 million bpd record high, overtaking the previous high established in 1970.
Moreover, crude supply is expected to increase in Brazil and Canada, along with Libya and Nigeria -- both OPEC members but not party to the production cut agreement because of internal struggles.
News reports indicate Royal Dutch Shell lifted a force majeure on its Forcados oil operations in Nigeria, which has been offline for more than a year. The resumption of activity at Forcados could boost Nigerian output by 200,000 to 250,000 bpd.
Nearest delivered WTI futures, currently the July contract, dropped from a $52.00 per barrel (bbl) high on May 25 to a $45.20 one-month low Thursday, with the previous low plumbed May 5 at $43.76 bbl.
"As long as [the $44.00 by $52.00 bbl] range stays intact, in my opinion, it's a clear indication the geo-political and economic struggle between OPEC and Western oil producer is still underway," said Hussey.
NYMEX July WTI futures settled up 19 cents at $45.83 bbl while down $1.83 from prior Friday. On Thursday, WTI settled at its second lowest settlement on the spot continuous chart of the year at $45.64 bbl, with the lowest settlement registered on May 4 at $45.52 bbl.
ICE August Brent crude futures settled up 29 cents at $48.15 bbl, reversing off a $47.40 one-month spot low, while down $1.80 on the week. Brent posted its lowest settlement of 2017 on Thursday at $47.86 bbl, with the previous low settlement realized on Nov. 29, the day before the initial OPEC agreement.
NYMEX July RBOB futures settled up 0.98 cent at $1.5017 gallon, reversing from a $1.4782 one-month spot low, while down 7.54 cents from prior Friday. RBOB futures have support at the May low of $1.45 gallon.
NYMEX July ULSD futures settled at $1.4312 gallon for a 0.89 cent gain on the session, while erasing 5.36 cents of its value on the week. On Thursday, ULSD futures traded at a $1.3748 gallon one-month low on the spot continuous chart.
Brian L. Milne can be reached at firstname.lastname@example.org
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