Oil Futures Lifted by Equities Rally

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures rallied to better than two-week highs this afternoon on the back of higher equities, with investors less concerned that a Jerome Powell-led Federal Reserve would rush to raise interest rates as the U.S. economy strengthens.

"A rebound in the stock market and reports of a Libyan oil supply outage sent oil higher," said analyst Phil Flynn at Prices Futures Group in Chicago.

The Dow Jones Industrial Average was 347 points higher, the S&P 500 index traded up more than 40 points, and the Nasdaq 100 index gained nearly 130 points this afternoon, building on the prior-day's gains. The dollar consolidated near Thursday's 10-day high.

The stock market and oil futures have a correlative trading relationship, with equities seen as a barometer for investor sentiment. The stock market has been volatile this week on inflation concerns.

On fundamentals, Libya's 70,000 bpd Elephant oilfield halted production on Thursday after armed guards who work for the facility decided to occupy it to protest their unpaid wages, Bloomberg reported, raising concern about Libyan exports to Europe and boosting Brent crude futures on the Intercontinental Exchange.

Libya has had security problems in recent years that has affected its supply, and a report by the Organization of Petroleum Exporting Countries last week showed its January production at nearly 1.0 million bpd.

Domestically, a report by Houston-based oil services firm Baker Hughes issued this afternoon showed the number of active oil rigs in the United States rose by only one this week to a 799 near three-year high.

"The rig-count increase was modest, which is a sign that [oil] production is leveling off," said Flynn.

On Thursday, the Energy Information Administration reported crude production eased 1,000 bpd from a 10.271 record high the week prior to 10.27 million bpd last week. However, a recent monthly EIA report projected production would average 10.6 million bpd this year.

EIA's data showed total commercial petroleum inventories fell 7.9 million bbl last week. Total products supplied over the last four-week period, a proxy for demand, averaged 20.6 million bpd, up by 4.3% from the same period last year.

NYMEX April West Texas Intermediate crude futures settled 78cts higher at $63.55 bbl, up 3% on the week, while ICE April Brent crude futures jumped 92cts to $67.31 bbl, gaining 3.7% on the week. NYMEX March RBOB futures soared 4.28cts to $1.8085 gallon settlement, up 3.2% on the week. March ULSD futures was 1.67cts lower at $1.9694 gallon settlement, 3.0% higher for the week.

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