Oil Futures End the Week Down

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 and on the week following Thursday's rally sparked by constrained exports from Venezuela, as traders took profits at the end of a week, which saw prices slump to multi-week lows as supply reports showed unexpected builds in crude oil and products inventories amid flagging demand for the week, which included the Memorial Day weekend.

Following Wednesday's (6/6) Energy Information Administration weekly supply report, contract values hit multi-week lows as commercial crude oil inventories posted a surprise 2.1 million bpd build to 436.6 million bpd, moving above the five-year average for the first time since mid-March even as refinery runs increased 1.5% to 95.4% of capacity as refiners ramped up gasoline production ahead of the official start of the summer driving season. The stock build came as U.S. oil production rose 31,000 bpd to a new high of 10.8 million bpd and as imports jumped 715,000 bpd to a five-week high of 8.346 million bpd.

Surging oil and products inventories amid flagging demand saw crude and product contract prices attain fresh eight-week lows, with the largest declines noted on the week for ULSD and RBOB gasoline.

Bearish sentiment on growing crude and products supplies continued midday Friday as weekly Baker Hughes data showed the number of deployed oil rigs rose for the third straight week and gained for the ninth week out of the past 10. Rigs deployed stand at a 38-month high of 862, up 121 against year prior and 115 higher year-to-date.

Traders said Friday's profit taking session is partly the result of EIA data for the week ended June 1, noting overall commercial petroleum stocks up 15.8 million bbl or 1.3% on the week to 1.2098 billion bbl. While up sharply on the week, market bulls caution stocks remain 136.7 million bbl or 10.2% lower than one year ago.

At the 2:30 PM ET settlement, NYMEX July WTI futures settled 21 cents bbl lower to $65.74 and 7 cents lower on the week, while August WTI futures fell 22 cents to $65.67 bbl, also marginally lower on the week.

ICE August Brent settled 86 cents lower to $76.46 bbl, off 33 cents bbl on the week, while September Brent fell 79 cents bbl to $76.19.

Market bulls also note that while U.S. production was reported by EIA at a record high 10.8 million bpd and forecasts output at an average 10.7 million bpd for 2018, world oil supplies remain tight as noted in recent gasoline and diesel prices which recently topped three-year highs, prompting a reaction from U.S. President Donald Trump asking the Organization of the Petroleum Exporting Countries to increase crude production by 1.0 million bpd.

Despite gasoline stocks increasing for three straight weeks through June 1, up 7.0 million bbl to 239.0 million bbl over the period, and gasoline supplied to market, or implied demand, down a hefty 713,000 bpd to 8.976 million bpd last week, July RBOB futures rose marginally to $2.1153 gallon, though down 2.8 cents or 1.3% on the week. August RBOB futures settled marginally lower at $2.1035 gallon in the seasonally backwardated market.

On the distillates side, July ULSD settled 1.56 cents gallon lower on the day to $2.1643 gallon, while weekly values reflected a 1.2 cents decline. August USLD contracts slipped 1.64 cents to $2.1675 gallon at settlement, its lowest price since bearish EIA data was reported June 6. EIA data reported distillate demand for the week ended June 1 down 817,000 bpd to 3.502 million bpd, while supply rose for the second straight week by 2.2 million bbl to 116.8 million bbl, a five-week high.

Despite the weekly U.S. supply builds, market bulls assert global oil stocks could be in further jeopardy in lieu of declining exports of crude oil and finished oil products from Venezuela, and the potential impact new oil and economic sanctions on Iran and possibly Venezuela might have on exports. Market participants also note prices could remain near current levels, at least until OPEC meets in Vienna on June 22.

Already slashed exports of crude and products from Venezuela could be further curtailed by 53.7% or 805,000 bpd in June as a result of PDVSA export asset seizures in the Caribbean by Conoco Phillips. As the struggling state-owned oil company attempts to redirect tanker shipments from its own ports, analysts expect delays to mount as a result of limited loading capacity.

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