Oil Futures End Down on EIA Report

OLD BRIDGE, N.J. (DTN) -- Oil futures nearest to delivery traded on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange ended lower Friday, with the West Texas Intermediate contract settling at a nearly eight-week low and oil products at three-week lows, as selling pressure mounted following a bearish supply report Thursday and ahead of Saturday's meeting of energy ministers from Saudi Arabia, the United Arab Emirates and Kuwait, in Kuwait City.

Saturday's meeting, media reports say, aims at addressing growing discord among Organization of the Petroleum Exporting Country members as recent calls to boost world oil production though the easement of ongoing production cuts would mainly benefit Saudi Arabia and Russia.

More importantly, controlling dissent could depend on the price behavior between now and June 22, with Brent crude down $3 from a May spot high settlement of $79.80 per barrel (bbl) through Friday. The price decline was sparked by news Saudi Arabia and Russia reached an agreement to increase production to address lost output from Venezuela and the potential affect sanctions might have on Iranian exports.

Saudi Arabia and Russia reportedly discussed increasing production by 300,000 barrels per day (bpd) to 800,000 bpd to offset lost Venezuelan output, while a growing consensus suggests an increase by as much as 1.0 million bpd. OPEC and non-OPEC oil producers that are part of the supply pact but not included in the discussions are reportedly upset.

Uncertainty regarding the meeting and ahead of the formal biannual OPEC meeting in Vienna June 22 is contributing to recent futures selloffs, traders say.

NYMEX July WTI futures settled $1.23 bbl less to $65.81 bbl, while August WTI futures declined $1.14 bbl to $65.77. On a weekly basis WTI lost 2.94% or $1.99 bbl.

ICE August Brent, which became the prompt month contract Friday, settled 76 cents lower to $76.79, while on a weekly basis, the spot-month Brent contract is down 82 cents bbl or 1.07%.

Friday's trading again widened the spread between WTI and Brent, with the front month contract's settling at a $10.98 bbl more than three-year high Brent premium.

The widening spread is reflective of current record U.S. crude oil production, while Brent, the international crude price marker, is underpinned by tumbling Venezuelan oil production and the potential loss of some Iranian crude exports.

The Energy Information Administration reported Thursday that U.S. crude production averaged 10.769 million bpd last week. Baker Hughes this afternoon reported the U.S. oil rig count increased by two this week to 861, with 64 rigs added in the second quarter.

A deepening WTI discount does incentivize U.S. crude exports, which the EIA reported averaged 2.179 million bpd last week, the sixth week this year with the export rate above 2.0 million bpd. However, pipeline bottlenecks and limited capacity to export crude in very large crude carriers are seen slowing growth in the export rate.

NYMEX oil products remained under pressure from Thursday's bearish EIA supply report, which showed unexpected supply builds.

NYMEX July RBOB futures settled 1.71 cents lower to $2.1434 bbl, with the July ULSD futures contract settling down 2.83 cents at $2.1763 gallon.

Brian Whary can be reached at brian.whary@dtn.com