Oil Settles Lower on Friday

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures settled lower across the board Friday afternoon. This was amid pressure from a report by the International Energy Agency forecasting higher oil supply by oil producing countries that are not part of the Organization of the Petroleum Exporting Countries and, in particular, explosive growth projected for shale production in the United States.

The Paris-based watchdog for energy consuming countries released its Oil Market Report for January this morning, revising up non-OPEC supply growth for 2018 by 100,000 bpd for year-on-year growth of 1.7 million bpd and output of 59.8 million bpd, pointing to rapid growth in oil production in the U.S., Canada and Brazil. The latest outlook follows an upward revision of 200,000 bpd made in December.

"Short-cycle production from the U.S. is reacting to rising prices and in this Report we have raised our forecast for crude oil growth there in 2018 from 870,000 bpd to 1.1 million bpd," said IEA. "It is possible that very soon U.S. crude production could overtake that of Saudi Arabia and also rival Russia's."

IEA also said oil inventories held by the 35 country members of the Organization for Economic Cooperation and development have tightened substantially since the second quarter of 2017, largely crediting production cuts by OPEC and 10 non-OPEC oil producing countries that took effect on Jan. 1, 2017. The 24-country agreement cutting 1.8 million bpd in crude production runs through the end of this year.

IEA said the global oil market will likely rebalance this year with full compliance with the agreement. The agency sees a modest surplus in the first half of 2018 and a modest deficit during the second half.

IEA said OPEC achieved 129% compliance with the agreement in December with output at 32.23 million bpd, down 130,000 bpd from November, due to sharply lower production from OPEC member Venezuela. Declines are accelerating in Venezuela, which posted the world's biggest unplanned output fall in 2017, said IEA.

The agency said oil production in Venezuela has been sliding for a long time—it is now about half the level inherited by President Hugo Chavez in 1999. In December, Venezuelan oil output was 490,000 bpd lower than a year ago, having fallen to 1.61 million bpd.

Rising supply is not the only bearish factor to consider, according to IEA. Although demand has been supported by "the current perception of healthy global economic activity," higher oil prices could dampen oil demand, the agency warned.

This afternoon, Baker Hughes reported the number of oilrigs operating in the U.S. fell by five from a four-month high to 747. The oil futures market shrugged off the report.

NYMEX February West Texas Intermediate crude oil futures contract was 58cts lower at $63.73 bbl settlement, off a better than one-week low of $62.85 and lost 93cts this week.

Intercontinental Exchange March Brent crude futures settled 70cts lower at $68.61 bbl, off a better than one-week low of $68.28 and down $1.26 versus a week ago. Brent settled above $70 bbl for the first time since December 2014 on Monday (1/15). NYMEX February RBOB futures settled 1.99cts lower at $1.8636 gallon this afternoon, up 1.41cts on the week. NYMEX February ULSD futures eased 0.33cts to a $2.0584 gallon settlement after having traded to a three-week spot low of $2.0363, and declined 2.66cts versus a week ago.

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