Oil Settle Off 2-Days Highs Friday

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures settled off two-day highs Friday afternoon, paring gains after Houston-based Baker Hughes, Inc. reported the number of active U.S. oil rigs rose again this week to a better than two-year high.

The Baker Hughes report showed the rig-count increased six this week to a 747 total, the 22nd consecutive week in which more rigs were deployed in the nation’s oil patch. There are now 410 more rigs drilling for oil than there were a year ago and the rig-count is at its highest since April 10, 2105.

The oil futures complex was boosted earlier in the day by a weaker U.S. dollar and short-covering after massive midweek losses that were driven by data from the Energy Information Administration showing the domestic oil market remains well supplied and summer-grade gasoline demand weak.

“The market was extremely oversold and most people think the bottom was reached after a terrible midweek selloff,” said analyst Phil Flynn at Price Futures. “This market was looking for an excuse to rebound and I also think we are getting to the point whereby the market is not going to respond to bearish news because apart from the rig count, there was also news that Canadian oil sands production is being restored.”

NYMEX July WTI crude futures settled up 28cts at $44.74 bbl, reversing off a $44.24 six-week spot low while down $1.09 for the week. Support held at $44.09.

ICE August Brent crude futures gained 45cts to $47.37 bbl, rebounding off a $46.81 six-week spot low, with support at $46.42. The contract lost 78cts for the week, and Brent ended at a premium to WTI of $2.63 bbl.

July ULSD futures gained 1.24cts to $1.4270 gallon, down a fractional 0.42cts the week. July RBOB futures climbed 1.91cts to $1.4548 gallon, down 4.69cts on the week.

EIA’s Weekly Petroleum Status Report issued on Wednesday showed total U.S. crude oil supply fell 1.7 million bbl to 511.5 million bbl during the week-ended June 9, although the inventories maintained a 2.1% year-over-year surplus.

The report also showed domestic crude production increased by 12,000 bpd to 9.33 million bpd last week, while 614,000 bpd higher than a year ago.

Gasoline and distillate supplies rose last week while demand fell for gasoline but rose for distillates during the week-ended June 9. On a year-over-year basis, gasoline demand was down 5.1%, while distillate demand was up 6%, according to the EIA data.

The relentless increase in U.S. crude production has frustrated bullish traders who have been betting that prices will rise as the Organization of Petroleum Exporting Countries continues to reduce its footprint in the oil market.

OPEC and 10 non-OPEC producers including Russia last month agreed to prolong their production cuts of nearly 1.8 million bpd through May 2018 with the aim of reducing supply overhang.

However, they are now reckoning with higher U.S. oil shale production and the recovery in Libyan production. Libyan oil supply has recovered faster than previously thought, with the National Oil Corp. estimating output will rise to 1 million bpd in July and above its 800,000 bpd March output.

The Libyans had projected an output of 1.1 million bpd by August, but the current rate of recovery they are likely to hit the target by next month.

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