Oil Futures Sag to Multi-Week Lows

Oil Futures Sag to Multi-Week Lows

OLD BRIDGE, N.J. (DTN) -- Oil futures nearest to delivery traded on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange slumped to multi-week lows Friday. Traders liquidated long positions ahead of next Friday's meeting of the Organization of the Petroleum Exporting Countries, where a decision to boost supplies from OPEC and non-OPEC members is expected.

More details continued to emerge this week as non-OPEC leader Russia suggested as much as 1.5 million bpd of oil production could be added to the market, while Saudi Arabia is said to be considering two increases of 500,000 bpd of new output phased in starting as early as this month.

Analysts expect next Friday's meeting could be contentious because some members of OPEC, namely Iran and Venezuela, want existing production cuts to remain since they won't benefit from a hike in production.

So far this year through May, OPEC data reveals Venezuela production is down 353,000 bpd to 1.392 million bpd as a result of mismanagement and an ongoing economic collapse. Re-imposed U.S. sanctions on Iran, levied by U.S. President Donald Trump when he pulled out of the Iran deal in May, could reduce Iranian exports by as much as 1.2 million bpd when they take effect later this year.

And, while the International Energy Administration said Wednesday in its monthly Oil Market Report that OPEC members could ramp production by 1.5 million bpd and non-OPEC leader Russia could boost its production, analysts agree U.S. output will be key. IEA forecast non-OPEC output could soar 2.2 million bpd above year-ago levels in 2018 and 1.7 million bpd in 2019, with the United States potentially accounting for 75% of the growth for both years.

Trader interest in key U.S. oil production data was updated Friday afternoon in that Baker Hughes reported U.S. oil companies added an additional rig for the second straight week this week to 863 rigs, up for the fourth consecutive week and for the tenth week out of the past 11.

Year-to-date oil rig deployments coincide with recent data released Wednesday by the Energy Information Administration showing an additional 100,000 bpd of U.S. crude oil production added in the week ended June 8, propelling domestic production to a record high of 10.9 million bpd. On Tuesday, EIA revised higher its outlook for U.S. output this year by 90,000 bpd, projecting production to average 10.79 million bpd for 2018 and 11.76 million bpd in 2019.

On the bullish side, Libya's Ras Lanuf and Es Sider ports were closed Thursday after militants attacked the facilities, cutting supply by 240,000 bpd, according to a Reuters report. Earlier this week, OPEC, citing secondary sources, said Libyan crude production fell 27,000 bpd in May to a 955,000 bpd eight-month low.

The lost Libyan supply failed to widen the spread between West Texas Intermediate and Brent futures, a key indicator of international oil risk, which narrowed to its tightest differential since May 24. The spread was last reported at $8.38 bbl at settlement, 60cts bbl lower on the day and off from a better-than three-year high of $11.37 bbl on June 7. A rising growing WTI-Brent spread makes U.S. crude more competitive for export in international markets.

WTI crude declined to its lowest settlement since June 6, down $1.83 to $65.06 bbl after the contract broke below support at $65.48 bbl to post a $64.58 bbl nearly two-week low, testing key support at $64.33. August WTI futures slumped $1.84 bbl to $64.85 bbl, also its lowest settlement since June 6. A strong U.S. dollar, which hit an 11-month high today following the Federal Reserve's rate hike on Wednesday also weighed on WTI futures.

ICE August Brent crude, which of late has been supported by heightened geopolitical risk, declined to its lowest level on the spot chart in more than five weeks after breaking through multiple support levels, including key support at $73.34 bbl, to a daily low of $73.12 bbl. August Brent tumbled $2.50 bbl to $73.44 bbl, erasing all of its contract gains seen since May 2, while September Brent finished $2.54 bbl lower at $73.08 bbl.

NYMEX July RBOB futures swung to a $2.0216 two-month spot low, breaking below key support at $2.0435, and settled down a steep 6.78cts to $2.0232 gallon, its lowest settlement since April 9. The August RBOB contract lost 6.84cts with a $2.0114 settlement, its lowest closing price since April 9 in the seasonally backwardated market.

NYMEX July ULSD futures traded at a $2.0841 two-month low on the spot continuation chart, breaking through key support at $2.1165, and ended down 7.17cts to $2.0870 gallon, its lowest settlement since April 17. The August ULSD contract settled down 7.17cts at $2.0901 gallon.

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