Oil Lower in Early Trade

OLD BRIDGE, N.J. (DTN) -- Oil futures nearest to delivery traded on the New York Mercantile Exchange (NYMEX) and Brent crude on the Intercontinental Exchange (ICE) continued lower in early trade Friday as traders positioned ahead of next Friday's meeting of the Organization of the Petroleum Exporting Countries (OPEC) in Vienna, and ahead of Friday's 1 p.m. ET drilling report from Baker Hughes.

Given the uncertain situation regarding the easing of ongoing 1.8 million barrels per day (bpd) OPEC, non-OPEC supply cuts, traders are keen to see whether Friday's rig report will continue a trend in supporting soaring U.S. output. The data follows this week's report from the International Energy Agency (IEA) indicating world oil supplies would likely remain "finely balanced" even if recent supply disruptions from Venezuela and Iran are addressed by increasing OPEC output at its June 22 meeting.

The Energy Information Administration (EIA) said Wednesday U.S. production jumped 100,000 bpd during the week-ended June 8 to a fresh record high at 10.9 million bpd, while on Tuesday said it projects domestic production to average at 10.79 million bpd for 2018 and 11.76 million bpd in 2019.

On June 8, Baker Hughes revealed that oil companies in the United States added rigs for a ninth week out of the past 10, pushing the number of operating rigs in the United States to a fresh 38-month high at 862. The June 8 report revealed 121 more rigs were operating this year versus last with 65 rigs added in the second quarter.

Some analysts contend, even if OPEC boosted output by an unlikely 2.0 million bpd at the meeting, supplies could remain tight, with oil values subject to large price fluctuations given growing world oil demand and a fluid geopolitical situation.

The cuts slashed production 1.8 million bpd against October 2016 output levels, went into effect Jan. 1, 2017, and are currently in the second year of the two-year agreement.

Russia is suggesting that as much as 1.5 million bpd of oil production could be added to the market, while Saudi Arabia is said to be considering a smaller increase, traders said, with reports indicating two increases of 500,000 bpd of new output phased in starting as early as this month.

Analysts expect next Friday's OPEC meeting to be contentious because some members of OPEC, namely Iran and Venezuela, want existing production cuts to stay in place 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.

While the IEA said Wednesday in its monthly Oil Market Report that OPEC members could ramp up production fairly quickly by 1.5 million bpd and Russia could boost non-OPEC production, analysts agree U.S. production will be key. IEA forecast non-OPEC output would continue to grow this year and next, with production projected 2.2 million bpd above year-ago levels in 2018 and annual growth in 2019 at 1.7 million bpd. IEA said the United States could account for 75% of the growth for both years.

Near 9 a.m. ET, NYMEX July WTI futures were down 22 cents to $66.67 barrel (bbl), while the August contract fell 20cts to $66.49 bbl. ICE August Brent slipped 65 cents at $75.29 bbl, while the September contract fell 65 cents to $75.47 bbl. NYMEX July RBOB contracts fell 1.6 cents to $2.0638 gallon, while the July ULSD contract dipped 1.9 cents to $2.1395 gallon.

Oil futures have accelerated the decline at last look.

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

(CZ)