Oil Higher in Friday Trade

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures were higher Friday morning, with West Texas Intermediate crude posting a fresh two-week high ahead of a report by Houston-based oil services firm Baker Hughes due this afternoon that would indicate whether or not more rigs were added to the nation's oil patch this week.

The oil futures complex has rallied this week from multi-month lows on technical support and data from the U.S. Energy Information Administration showing crude production declined 100,000 bpd to 9.25 million bpd last week.

This is the steepest weekly oil production drop in a year, with output falling to the lowest level since early April, and down from a 9.35 million bpd two-year high averaged during the week-ended June 16.

The data also showed gasoline inventories declined by 894,000 bbl for the week reviewed while middle distillate fuels supply fell by 223,000 bbl. Demand for gasoline and distillates dropped, however, last week.

The latest EIA data were bearish relative to estimates, but the market has been looking for signs the U.S. oil production rate is slowing and indications that the ongoing 1.8 million bpd in production cuts by the Organization of the Petroleum Exporting Countries and non-OPEC producers are actually reducing the global inventory surplus.

This week's oil rally follows last week's plunge into a bear market technical status that was driven by short-covering as the market reached oversold conditions.

With WTI and RBOB futures settling above their initial resistance levels midweek the market has steadied, finding technical support ahead of the July 4 long holiday weekend and the close of the second quarter.

Moreover, the oil price action comes as position-squaring is seen driving trading decisions before expirations on Friday afternoon of the NYMEX July ULSD and RBOB futures contracts and the August Brent crude futures contract on the IntercontinentalExchange.

The upside for oil futures is curbed however by lingering concerns about global supply. Libyan production will reach a four-year high of 1.0 million bpd in the next few days, according to reports citing a National Oil Corp. official. Libya had produced more than 1.6 million bpd before a 2011 Arab spring uprising, and average production has not exceeded 1.0 million bpd since July 2013.

Wall Street bank Goldman Sachs on Thursday cut its three-month price forecast for WTI to $47.50 bbl this year from $55 bbl.

Other reports said 6.0 million bbl of North Sea Brent crude were being stored in offshore tankers this week, down from a four-month high of 9.0 million bbl last week, suggesting refineries were starting to take in more barrels.

In early trade, NYMEX August WTI crude futures added 34cts to $45.27 bbl, moving off a fresh two-week spot high of $45.48 on the spot continuation chart. The WTI contract is taking aim at the next technical resistance at $45.85.

ICE August Brent crude oil futures gained 21cts to $47.63 bbl after inside trade and ahead of its expiration, edging off Thursday's $48.03 two-week high. September Brent was up 29cts at $47.92 after posting a $48.16 intraday high.

In products trade, July ULSD futures gained 1.10cts to $1.4570 gallon after inside trade, while the August contract added 1.23cts to $1.4628 gallon. July RBOB futures added 0.31cts to $1.4887 gallon after inside trade while the August RBOB was 0.33cts higher at $1.4803 gallon.

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