Oil Futures End Choppy Session Higher

Brian L Milne
By  Brian L. Milne , DTN Refined Fuels Editor

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures and Brent crude on the Intercontinental Exchange settled higher after a choppy session, with the May West Texas Intermediate contract eking out a small gain as it expired, while nearest-delivered NYMEX oil products and ICE Brent crude settled at fresh highs.

Oil futures were bolstered overnight on news from the Organization of the Petroleum Exporting Countries of strong compliance in March with a production cut agreement, and talk of potentially extending the two-year accord set to expire at year end into 2019. The news followed reports earlier in April that Saudi Arabia would like to see Brent crude at $80 per barrel (bbl), a price point some analysts think will be reached by midyear.

Frequently called the Vienna agreement, where the accord was reached in November 2016, OPEC and 10 non-OPEC oil producing countries that include Russia pledged to reduce output by 1.8 million bpd from their October 2016 production levels. After a meeting in Saudi Arabia early Friday by the OPEC/Non-OPEC Joint Ministerial Monitoring Committee, OPEC announced compliance with the agreement reached 149% in March.

The advance was reversed by a tweet from U.S. President Donald Trump that noted the meeting, and scolded OPEC in what the president suggested was an effort by the producer group to push oil prices higher.

"Looks like OPEC is at it again," Trump tweeted. "Oil prices are artificially Very High!"

Trump's tweet kept a lid on the upside for much of the morning with help from a stronger U.S. dollar, which traded at a two-week high, and a selloff in equities.

Oil futures shook off the weakness in afternoon trade, although WTI futures dipped after Baker Hughes early afternoon reported the third consecutive weekly increase in the U.S. oil rig count, up five this week to a fresh better-than three-year high at 820. Oil companies have deployed 23 rigs in the U.S. oil patch so far this quarter, and 73 year-to-date.

The Baker Hughes report was taken in stride, with market sentiment bullish, and after the Energy Information Administration on Wednesday reported a 10.6 million bbl drawdown in total U.S. commercial crude and oil products inventories to 1.181 billion bbl, down 150.1 million bbl, or 11.3%, slipping below the five-year average.

This was a bullish data point, as OPEC initially said success with the OPEC/Non-OPEC agreement would be determined by draining supply in commercial oil inventories held by the 35 country bloc Organization for Economic Cooperation and Development to their five-year average, a goal the International Energy Agency on April 13 said could happen as early as May. The United States is a member of OECD.

In their release following the compliance committee meeting, OPEC said OECD commercial oil inventory was drawn down 300 million bbl from July 2016 when supply peaked at 3.12 billion bbl to March when OECD inventory held 2.83 billion bbl. OPEC said they are considering new metrics in determining success with their accord.

"Now there are reports that the Saudi oil minister Khalid al Falih wants to reduce stockpiles even further. Russian Energy Minister Alexander Novak is on board saying that Russia was committed to a deal on cutting oil supplies until the end of 2018, no matter what," said Phil Flynn, senior market analyst with The PRICE Futures Group.

EIA's midweek report included several bullish features, including preliminary data showing gasoline demand in the United States reached a record high of 9.857 million barrels per day (bpd) during the week-ended April 13. On the bearish side, EIA reported U.S. oil production reached a fresh record high at 10.54 million bpd, the eighth consecutive weekly record. On Monday, EIA said it expects shale oil production to increase by 125,000 bpd to 6.996 million bpd in May, with 73,000 bpd of that growth generated by the Permian Basin. EIA expects Permian output to average 3.183 million bpd in May. Earlier this month, EIA forecast 2018 U.S. oil production at a record high of 10.7 million bpd.

"It's worth noting that the current run up in crude prices could be the result of pipeline constraints, where US shale oil fields are having trouble moving the product to market. This is generally because pipelines are at capacity, and with pipeline expansion projects in the works, WTI producers are having to rely on the more expensive means of trucking crude from fields to refineries," said Dan Hussey, Market Strategist with RJO Futures.

Hussey added, "With a constraint in the ability to get oil out of production areas, the rally which broke through multi-year highs seems like confirmation of a longer term trend beginning."

NYMEX May WTI futures expired 9 cents higher at $68.38 bbl, holding below Wednesday's $68.47 better-than-three-year high on the spot continuous chart, and gained 99 cents on the week. June WTI settled up 7 cents at $68.40 bbl, while calendar spreads a year out widened, which is bullish.

ICE June Brent crude settled up 28 cents at $74.06 bbl, the highest settlement on the spot continuous chart since late November 2014, while up $1.48, or 2.0%, from prior Friday.

NYMEX May RBOB futures gained 3.05 cents on the week and 1.85 cents on the session to a $2.0959 gallon 7-1/2-month-high settlement on the spot continuous chart.

NYMEX May ULSD futures settled up 1.36 cents at a $2.1230 gallon fresh nearly three-month spot high, while 2.28 cents higher on the week.

Brian L. Milne can be reached at brian.milne@dtn.com

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Brian Milne