Oil Futures End Higher in Thin Trade

NEW YORK (DTN) -- Spot-month oil futures on the New York Mercantile Exchange settled higher across the board Friday after recouping early losses on brightening supply and demand balance in the United States.

The futures complex had been choppy in morning trade, but reversed higher when Houston-based oil service firm Baker Hughes reported that the U.S. rig-count was unchanged at 747 this week. Traders keep an eye on the count amid concerns shale oil producers could ramp up production next year in response to higher prices.

"The fact that the rig count was steady was very supportive because it shows a slowdown in drilling," said Phil Flynn, an analyst at Price Futures. "There have been too much optimistic projections about shale production which I don't think I agree with. In fact, there's a risk we could have a crude supply deficit next year."

The market appeared to be overbought earlier in the morning and futures specialist Brian LaRose at ICAP futures in Jersey City, N.J., said that bullish traders have two tasks to revive the uptrend: The first was to lift West Texas Intermediate over $58.99 to $59.05 highs and the second was to prevent the Brent-WTI arbitrage from getting beneath the minus $7.15 to minus $7.05 lows. Brent traded near a $6.80 premium to WTI this afternoon.

The market was thin Friday with most traders taking off early for the holiday. A quiet post-Christmas market is expected next week ahead of the New Year break. Markets are closed on Monday for Christmas.

The rally this week was underpinned by the shutdown of 450,000 barrel-per-day (bpd) Forties pipeline in the North Sea, drawdown of commercial crude oil inventories in the United States, and curbs to production by the Organization of Petroleum Exporting Countries and 10 non-OPEC producers.

OPEC said Tuesday that they have achieved a 122% rate of compliance with their production cut agreement. Domestically, crude oil stockpiles have fallen by a combined 11.6 million barrels (bbl) over the past two weeks, according to data from the Energy Information Administration.

NYMEX February West Texas Intermediate crude futures settled up 11cts at $58.47 bbl, off a 10-day high of $58.50. February Brent crude oil futures contract on the Intercontinental Exchange were 35cts higher at $65.25 bbl settlement, off a $65.28 10-day high.

NYMEX January ULSD futures settled up 1.92 cents at $1.9694 gallon and January RBOB futures settled 1.47 cents higher at $1.7623 gallon.

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