Oil Futures Rally on Mideast Tensions

NEW YORK (DTN) -- New York Mercantile Exchange spot-month oil futures settled higher Friday, rallying on geopolitical risk and a higher demand outlook that offset industry data showing an increase in the number of rigs drilling for oil in the United States.

"It's short-covering because the Saudi Crown Prince Mohammed bin Salman is meeting with President Trump next week, and so there's speculation Trump will get out of the Iran nuclear deal, and impose more sanctions to Tehran," said analyst Phil Flynn in Chicago.

Others agreed.

"The Europeans are going to impose additional sanctions on Iran, and also Saudi Arabia said this week that they'll start their own nuclear program if Iran is allowed to build theirs, and so those two things gave the market a pause and heightened tensions in the Middle East," said Andy Lipow, president of Lipow Oil Associates in Houston.

In addition, the latest monthly global demand forecasts released this week were bullish.

On Wednesday, the Organization of the Petroleum Exporting Countries issued its Monthly Oil Market Report that marginally raised its demand outlook from February estimates, forecasting demand at 98.63 million barrels per day (bpd) for 2018 for annual growth of 1.60 million bpd.

On Thursday, the International Energy Agency revised up its demand estimate for this year by 90,000 bpd, with global oil demand for the year now expected to grow by 1.5 million bpd to 99.3 million bpd.

In both cases, the IEA and OPEC highlighted strong economic growth in the United States that's supporting demand.

On the domestic front, the Energy Information Administration on Wednesday showed U.S. refinery crude oil inputs increased by 432,000 bpd last week to 16.367 million bpd, while demand for gasoline rose by 366,000 bpd to 9.64 million bpd.

Rising U.S. supply remains the bearish factor for oil futures, said the analysts. EIA on Wednesday showed domestic crude output rose last week to a fresh record high of 10.381 million bpd, up 1.272 million bpd on the year.

Today, Baker Hughes reported the number of U.S. rigs drilling for oil in the U.S. rose by four this week to 800. The count has gained in seven of the past eight weeks while 53 higher year to date.

Lipow also noted that Dow Jones Industrial Average and S&P 500 index were moderately higher this afternoon, with correlative relationship still intact for oil and equities.

At settlement, NYMEX April West Texas Intermediate crude oil futures rallied $1.15 to $62.34 per barrel (bbl), settling near a one-week high of $62.54 and up 30cts for the week. Intercontinental Exchange May Brent crude settled $1.09 higher at $66.21 bbl, trimming an advance to a two-week high of $66.42, and gained 72 cents on the week.

In trans-Atlantic arbitrage trade, the Brent contract ended at $3.87 bbl, near Thursday's two-week high.

NYMEX April RBOB futures settled 2.11 cents higher at $1.9459 gallon, off a 6-1/2 month spot high of $1.9542, with the contract gaining 4.16 cents for the week. April ULSD futures climbed 1.89 cents to settle at $1.9118 gallon, off a $1.9190 two-week high on the spot continuation chart, and up 2.52 cents versus a week ago.

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