Oil Futures Settle Lower

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled lower across the board on Friday afternoon amid a technical correction after Thursday's rally, with all the spot-month contracts closing the volatile trade week down 3.0% to nearly 5.0% versus the prior Friday.

The selloff for the oil futures complex, especially for West Texas Intermediate futures and Brent crude on the Intercontinental Exchange, came after a downgrade of the potential impact of Tropical Storm Nate to U.S. oil supply.

Nate is projected to make landfall along the U.S. Gulf Coast on Sunday as a hurricane but supply concerns have eased, prompting profit-taking ahead of the weekend break. The storm is seen bypassing most oil and gas assets in the Gulf region, although offshore production operators in Nate's path are shutting wells in the Gulf of Mexico in advance.

"You can call it a correction," said analyst Brian LaRose, at ICAP in Jersey City, N.J. "People were fearful about the [approaching] storm yesterday, but after it was downgraded we quickly saw a rundown today. So you can say yesterday's rally was a set up for today's selloff."

The National Hurricane Center issued a hurricane warning for Grand Isle Louisiana to the Alabama-Florida border while a tropical storm warning is in effect for the New Orleans area.

This would be the first major storm in nearly a decade to hit New Orleans, but it comes only six weeks after Hurricane Harvey devastated southern Texas, shutting a quarter of the nation's refining capacity, most of which are now back to normal operation.

Nate packed maximum sustained winds of 50 mph, moving north-northwest and is expected to drop 3 to 6 inches of rain in central Gulf Coast after causing havoc in Honduras.

Aside from the storm, the selloff for oil futures complex was led by seasonally bearish gasoline market fundamentals, said LaRose, as well as U.S. data issued Wednesday showing higher U.S. crude oil production.

The Energy Information Administration's data showed a 14,000 bpd rise in domestic output to a better than two-year high of 9.561 million bpd for the week ended Sept. 29. However, today's data from oil services firm Baker Hughes, Inc. showed the rig count down two to 748 this week.

Gasoline supply climbed 1.6 million bbl as demand for the fuel tumbled 281,000 bpd to 9.241 million bpd in the last week of September, while down 1.6% year-on-year.

"RBOB is the leader of the pack or the proxy for the market going lower because there's a significant amount of downside risks, and in fact we expect to see a 30% drop from September levels by January, so today's selloff is the initial sign of a major seasonal retreat," said LaRose.

He continued, "We have seen the top for RBOB futures at $1.68 and now we've put a stop for the contract at $1.52. If we break below that $1.52, then we'll go further down."

Today's lower oil move follows Thursday's rally sparked by comments from Russian President Vladimir Putin and King Salman bin Abdulaziz of Saudi Arabia. The King indicated a willingness to extend a production agreement set to expire at the end of the first quarter 2018 through the end of 2018.

Although no formal agreement was concluded, Putin wasn't negative while indicating a desire to wait until the agreement nears its current March 2018 expiration.

On Nov. 30, the Organization of the Petroleum Exporting Countries will meet again in Vienna to discuss their agreement, which cuts 1.2 million bpd in crude production and took effect Jan. 1 alongside a companion pact with 10 non-OPEC oil producers led by Russia that reduces their output by 558,000 bpd.

At settlement, NYMEX November WTI futures dropped $1.50 to $49.29 bbl, off $49.10 three-week spot low while setting up a test of support at $48.73 bbl. The contract is down 4.6% on the week.

December Brent crude on the ICE platform settled $1.38 lower at $55.62 bbl, off a two-week spot low of $55.13 bbl after shedding 3.3% for the week, closing at a $6.33 bbl premium to WTI.

NYMEX November ULSD futures plunged 4.24cts to settle at $1.7439 gallon while down 3.3% for the week. November RBOB futures plummeted 5.26cts to a $1.5588 gallon settlement, down 3.0% for the week.

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

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