Oil Settles Higher as Rig Count Eases

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures settled modestly higher Friday afternoon. Little changed for the week, with the complex shaking off early weakness after Houston-based oil services firm Baker Hughes, Inc. showed the number of oil rigs actively operating in the United States declined by one to 765 this week.

This is the second one-rig decline in three weeks, and the report underlines the slower pace in rig deployment in the third quarter. Over the past five weeks, the tally has moved little in either direction, while the number of new rigs added in the oil patch is up 240 year-to-date and 384 more than a year ago, Baker Hughes data shows.

NYMEX September West Texas Intermediate crude futures settled 55cts higher at $49.58 bbl, down 13cts for the week. October Brent crude oil futures on the IntercontinentalExchange settled 41cts higher at $52.42 bbl, down 10cts for the week.

NYMEX September ULSD futures were 0.97cts higher at $1.6486 gallon, up 0.89cts. The September RBOB futures contract gained 1.44cts to $1.6463 gallon, down 2.98cts for the week.

The advance by NYMEX WTI futures came despite a rally by the U.S. dollar in response to a strong July payroll report and comments from National Economic Council Director Gary Cohn about cutting taxes for corporations.

The dollar index, which measures the greenback against six key global currencies, rebounded from a 15-month low midweek to a one-week high this afternoon after the Labor Department earlier this morning reported 209,000 jobs were added to payrolls in July, beating a market estimated 180,000. The report also showed the nationwide unemployment rate dropped to a 4.3% 16-year low, while wages grew by 0.3% month-on-month as expected and by 2.5% year-on-year. Labor force participation rate ticked up 0.1% in July to 62.9%, showing a healthy economy is driving more people to look for work, which, in turn, is could support fuel demand going forward.

Still, with only a month left before the summer peak demand season is over investor sentiment might be turning bearish as U.S. crude production reached a two-year high. Analysts also pointed to news that legendary oil trader Andrew Hall is shutting his hedge fund after losses on bullish bets as evidence that a bearish sentiment might be emerging among speculative players.

Hall has been a high profile trader who betted that oil prices would go higher following an agreement by the Organization of the Petroleum Exporting Countries and their non-OPEC allies to cut production by 1.8 million bpd through March 2018. However, the U.S. production boom has offset production cuts by OPEC and non-OPEC, delaying market rebalancing.

The Energy Information Administration on Wednesday said domestic crude oil production rose to a 9.43 million bpd fresh two-year high during the week-ended July 28 at 970,000 bpd above a year ago. U.S. crude oil stocks are being drawn down but the pace of the global supply draw has been slow.

In addition, media surveys earlier this week suggested OPEC compliance rate with their supply agreement eased, with output rising in Libya and Nigeria. Some OPEC members and nonmembers will converge in Abu Dhabi Aug. 7-8 for a technical meeting on how to improve compliance with their production agreement.

Next week OPEC, EIA and the International Energy Agency will release monthly outlooks for the global market that will include July OPEC crude oil production figures.

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