Oil Futures Settle Up

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures settled higher Friday afternoon after rallying throughout the day on renewed expectations the Organization of the Petroleum Organization would agree to extend their production cuts at their Nov. 30 annual summit in Vienna.

The rally Friday followed three days of losses after the oil market was spooked midweek by higher U.S. crude supply and production and a report that cast doubt on the plan to extend the output cuts.

Saudi Arabian energy minister Khalid al-Falih said earlier Friday that OPEC should announce an extension of their current production cuts when they meet for their annual summit on Nov. 30 in Vienna. His comment was probably triggered by a Bloomberg report that said Russia was reluctant to sign off on the decision to extend the cuts this month because it's too soon.

"The rally was due to a combination of a few things, but the Saudi comment was the key news and it was very bullish since it seems as he if was saying the extension of the supply cuts is a done deal," said Phil Flynn, a senior analyst at Price Futures Group.

Both Saudi Arabia and Russia have been in talks to extend the output cuts of 1.8 million bpd by nine months through December 2018 rather than have them expire at the end of the first quarter 2018, as they aim to eliminate a global supply overhang.

At the same time, there were also concerns Thursday's Keystone pipeline leak would stop supply from getting down to Cushing, Okla., which would tighten the Brent crude premium over West Texas Intermediate crude oil, said Flynn.

In addition, a cold blast in the Northeast forecast for next week is likely to boost heating demand at a time when distillate fuel supply is tightening. On Wednesday, the Energy Information Administration showed distillate stocks fell last week by nearly 800,000 bbl while implied demand dropped 457,000 bpd, although demand is expected to recover, said analyst Kyle Cooper at IAF Advisors.

Gasoline demand is expected to be robust for the Thanksgiving Day holiday weekend. AAA on Thursday projected that 50.9 million people would travel 50 miles or more from home for this year's Thanksgiving holiday, up 1.6 million or 3.3% versus a year ago and the most in a dozen years.

Also, Baker Hughes reported Friday that the number of rigs actively drilling for oil in the United States held steady at 738 this week while 267 higher than the comparable year-ago period.

"The fact that the rig count was flat was supportive because it shows a slowdown in drilling activity," said Flynn. "You should also know that the market was overbought coming into this week, so after we pared that early in the week, the market wanted to get back up."

The recent string of increases in domestic crude production prompted speculation that OPEC's efforts to rebalance the market by cutting output may be undermined by higher U.S. output. Today's rig count report allayed those fears, if only temporarily.

NYMEX December WTI crude oil futures settled $1.41 higher at $56.55 bbl, near a three-day high of $56.60 while losing 19cts on the week, the first weekly loss in 1-1/2 months. The December contract expires on Monday (11/20). January WTI futures jumped $1.36 to $56.71 bbl at settlement.

January Brent advanced $1.36 to $62.72 bbl on the Intercontinental Exchange, off a $62.92 three-day high while down 80cts on the week. The

Brent premium to WTI tightened 61cts this week to $6.17 bbl at the close.

In products trade, NYMEX December ULSD futures rallied 4.45cts to a $1.9466 gallon settlement, off a $1.9545 one-week high and up 1.17cts on the week. December RBOB futures settled 3.10cts higher at $1.7447 gallon, off a two-day high of $1.7523 and lost 6.77cts this week.

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