Oil Futures Sink as Rigs Soar

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures plummeted Friday afternoon. West Texas Intermediate crude settled below $60 bbl for the first time in 2018, while ULSD posted a 3-1/2 month low, as fresh industry data showing a big weekly jump in the U.S. oil rig count stoked concern over record-high domestic production that accelerated long liquidation.

The "Oil market has been rocked by a combination of equity market selloff and higher oil production, and Friday the increase in rig count caused more selling," said Tom Bentz, vice president for energy derivatives of ABN AMRO in New York. "[Oil] fundamentals are still in place, but remember hedge funds were extremely long on oil futures, so when the equities market started to correct, the funds started to liquidate [length in oil futures]. That's what has caused this volatility."

Oil services company Baker Hughes reported that the number of U.S. oil rigs surged 26 to a near three-year high at 791 during the week-ended today. This also marks the largest one-week gain since January 2017, and at the current level, rigs are 200 higher than a year ago.

"The big jump in the rig count added to the bearish momentum alongside the stock market selloff," said senior analyst Phil Flynn at Price Futures in Chicago. "There's a lack of confidence. This is a problem of perception being greater than reality, so the market is under pressure. Oil is caught up in the liquidation frenzy.

He added, "The fear is that the stock market is signaling potential slowdown in the global economy, and so these additional oil production will not be consumed quickly."

The rigs data followed the Energy Information Administration's midweek report that U.S. crude production soared to a 10.25 million bpd record high during the week-ended Feb. 2. The previous record high was achieved in November 1970 at 10.044 million bpd. On Wall Street, the Dow Jones Industrial Average and S&P 500 index moved higher Friday afternoon after Thursday's plunge on inflation fears, with the Dow now in a correction territory. The dollar is trading near a two-week high, exerting additional pressure on oil futures.

At settlement, NYMEX March WTI crude futures sank $1.95 to $59.44 bbl, paring a decline to a $58.07 1-1/2 month spot low while down $6.25 for the week. April Brent crude oil on ICE platform tumbled $2.02 to $62.79 bbl, moving a $1 off a two-month spot low of $61.77, while down $5.79 for the week.

NYMEX March ULSD futures plummeted 6.62cts to $1.8551 gallon, having traded to a $1.8302 3-1/2 month spot low, and posted a weekly loss of 19.84cts. March RBOB futures tumbled 6.48cts to $1.7002 gallon at settlement, near a seven-week spot low of $1.6704, while down 17.18cts on the week.

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