Oil Futures End Mixed Friday

CRANBURY, N.J. (DTN) -- Oil futures with nearest delivery traded on the New York Mercantile Exchange and Brent crude on the IntercontinentalExchange settled shallowly mixed Friday in consolidation trade on moderate volume after entering a bear market this week, while ending lower for the fifth consecutive week.

Stubbornly high global oil inventory, including floating storage that is said to have reached a record high, have triggered extensive long liquidation selling in June despite the late May extension of nearly 1.8 million barrels per day (bpd) in production cuts from the end of June through the first quarter 2018 by the Organization of the Petroleum Exporting Countries and 10 non-OPEC oil producing countries.

Some analysts suggested Wednesday's plunge to 10-month spot lows by West Texas Intermediate and ULSD futures and to seven-month spot lows by Brent and RBOB futures are overdone. They note U.S. commercial crude supply has been drawn down 26.4 million barrels (bbl) during the second quarter through June 16, while demand is set to pick up over the summer that is estimated to outstrip new supply and accelerate inventory drawdowns. Citi Futures projects demand will outpace production by roughly 800,000 bpd during the third quarter.

Additionally, with WTI in the low $40s bbl, some suggest the rapid ascension in U.S. crude production, up 548,000 bpd in 2017 through June 16 to a 9.35 million bpd 22-month high, will slow.

Perhaps that expectation limited the response to the 23rd consecutive weekly increase in oil rigs in the United States through today, with Baker Hughes, Inc. reporting an 11 rig increase in the U.S. oil patch from prior Friday to a fresh 26-month high at 758. Year-to-date, oil companies have deployed 233 rigs through today, with the oil rig count up 428 from year prior.

NYMEX August WTI futures did decline to the low end of today's trade range in the immediate reaction to the 1 p.m. EDT release of the rig data, but reversed higher to end up 27 cents at $43.01 bbl.

A weaker U.S. dollar, which slumped to a one-week low, lent upside support for WTI futures. Still, WTI futures, which settled at $42.53 bbl Wednesday -- the lowest settlement value on the spot continuous chart since early August 2016, erased $1.73 or 3.9% of its value this week, while down $10.71 bbl or 20% from the 2016 closing price.

"From a technical perspective, breaking below the May 43.76 lows from the continuous contract is massively significant," said Dan Hussey, senior market strategist with RJO Futures.

Hussey, who points to a declining price channel and a confluence of Fibonacci retracement and extension support bands, sees WTI futures testing support at the $40.65 bbl area in the near to medium term.

ICE August Brent crude futures settled up 32 cents at $45.54 bbl after ending the midweek session at a $44.82 bbl seven-month spot low, while down $1.83, or 3.9%, from prior Friday. The Brent contract is down $11.28, or 20%, from the end of 2016. Brent, which broke below key support at $46.42 this week, has retracement support at $42.73 bbl.

NYMEX July RBOB futures settled flat, down four points, at $1.4341 gallon, a modest improvement from Wednesday's seven-month low settlement on the spot continuous chart at $1.4105 gallon. RBOB futures is down 2.07 cents this week and 23.1 cents, or 15%, year-to-date, while down sharply from the 2017 high of $1.7710 gallon achieved in mid-April. RBOB futures have retracement support at $1.3342 gallon.

NYMEX ULSD futures also settled flat, up one point, at $1.3717 gallon, which compares with Wednesday's $1.3648 gallon 10-month low settlement on the spot continuous chart. ULSD futures are down 5.53 cents or 3.9% on the week and 33.3 cents or 20% on the year. ULSD futures, which broke below support at $1.4148 this week, have support at the $1.3067 gallon retracement point.

NYMEX oil futures could find support through short covering purchases early next week, with the Commodity Futures Trading Commission this afternoon reporting noncommercial traders cutting net length in WTI futures to a six-week low, and RBOB futures to a five-week low through Tuesday, June 20. Noncommercial traders nearly erased a net-long position in NYMEX ULSD futures during the preceding week, reducing net length to 18 contracts. CFTC, in their Commitment of Trader's report this afternoon, shows the speculator group closed Tuesday's trade with a 653 net-long stance.

Wednesday's selloff likely reduced these net-long positions.

Brian L. Milne can be reached at brian.milne@dtn.com

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