NYMEX Oil Futures Settle Higher

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures settled higher Friday afternoon, shaking off morning weakness and rebounding amid short-covering ahead of the weekend break due to growing geopolitical tension.

"This was short-coving going into the weekend because there's concern we could have an event given the tension between the United States and North Korea," said analyst Andrew Lipow of Lipow Oil Associates in Houston.

The gains were supported by an industry report Friday afternoon showing easing growth in U.S. rig count this week, and another report issued earlier by the International Energy Agency saying strong global demand is moving the market toward rebalancing, although achieving that desired goal will take more time.

"Despite an increase in the U.S. crude oil rig count, we saw onshore rigs number dropped and the total number of crude and gas rigs also fell, a sign that we are starting to see shale producers pulling back on production," said analyst Phil Flynn at Price Futures in Chicago.

Earlier, the IEA issued a report that said global oil supply, including output by the Organization of Petroleum Exporting Countries, increased in July.

Paris-based IEA, in its Oil Market Report for August, said global oil supply increased in July by 520,000 bpd from June, the third straight monthly increase, with global supply 500,000 bpd higher versus a year ago.

The report said OPEC production rose in July by 230,000 bpd to a 2017 high of 32.84 million bpd led by a strong recovery in Libya. This is the latest report confirming that some OPEC members and nonmembers are cheating on their production quotas.

OPEC members and 10 nonmembers including Russia agreed last fall to reduce production by a combined 1.8 million bpd from Jan. 1, with the deal renewed and extended in May to March 218. Compliance with the pact was strong for the first six months, but slackened in July, according to OPEC and three recent media surveys.

"Output from the 12 members included in the output pact edged up, eroding the compliance rate to 75%, the lowest this year. Year-to-date compliance is 87%," IEA said Friday. "Non-OPEC output is expected to expand by 700,000 bpd in 2017 and 1.4 million bpd in 2018, and the 10 non-OPEC countries that cooperated with OPEC in reducing output saw compliance rate improve to 67% in July."

While reporting higher supply, IEA revised up its global oil demand growth estimate for 2017 by 100,000 bpd to 1.5 million bpd, so that total demand for this year is estimated at 97.6 million bpd. In 2018, global demand growth rate is estimated to ease to 1.4 million bpd, totaling 99 million bpd.

This comes a day after OPEC issued a bullish monthly report on demand while bearish on supply.

Domestically on Wednesday, the Energy Information Administration showed U.S. crude inventories plunged for the sixth straight week to a 9-1/2-month low of 475.4 million bpd and crude production also eased off a two-year high during the week-ended Aug. 4.

September West Texas Intermediate crude futures settled 23cts higher at $48.82 bbl, reversing off a two-week spot low of $47.98, but ended the week down 76cts. October Brent futures on the IntercontinentalExchange gained 20cts to a $52.10 bbl settlement, bouncing off a one-week spot low of $51.30 and ending the week down 32cts.

September ULSD futures contract was little changed on the day and on the week, settling up 0.33cts at $1.6346 gallon, after moving off a two-week spot low of $1.6112. The September RBOB futures contract was up 1.02cts at a $1.6130 gallon settlement, off a two-week spot low of $1.5852 and ended the week down 3.33cts.

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