Oil Futures Spike on OPEC Output

OLD BRIDGE, N.J. (DTN) -- Oil futures nearest to delivery traded on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange posted multi-week highs at settlement Friday as the Organization of the Petroleum Exporting Country announced a 600,000-barrel-per-day (bpd) production boost effective July 1 at its now-convened ministers meeting in Vienna that was at the low end of recent estimates.

As a result of the low end output boost, with a hike in production priced into the market ahead of the announcement, West Texas Intermediate crude oil rose $3.04 per barrel (bbl), gaining more than 4.6% on the day to settle at $68.58 bbl, its highest settlement in more than three weeks, and nearly 6% higher on the week.

Brent crude oil, WTI's international counterpart, rose $2.50 or more than 3% to settle at $75.55 bbl, its highest level since settling at $75.94 bbl on June 14, and $2.11 bbl or 2.9% higher on the week. As a result of boosted OPEC output, the Brent-WTI spread, a key measure of U.S. oil profitability in world export markets, declined to $6.97 bbl at settlement, its lowest level in six weeks.

In its communique following the conclusion of the meeting, analysts say OPEC avoided a decision to lift production restraints that went into effect January 2017, by instead agreeing to lower its adherence to the accord from 152% in May to 100%, calling it a "clever way to increase output without officially agreeing on an end to output curbs."

The production agreement reduced OPEC production by 1.2 million bpd from their October 2016 output rate, setting production levels at 29.804 million bpd. May OPEC production rates cited by secondary sources is estimated 29.203 million bpd, 601,000 bbl less when you strip out Nigerian and Libya, who weren't included in the original agreement.

Non-OPEC members aligned with OPEC agreed in 2016 to reduce their October 2016 output by about 600,000 bpd, analysts say. The 10-member non-OPEC contingent led by Russia are set to meet Saturday to discuss lifting production, with the expected total OPEC and non-OPEC output increase at about 1.0 million bpd. Earlier this week, Russia suggested OPEC and non-OPEC boost production by 1.5 million bpd, though the higher increase faced resistance from some OPEC members, partly because it was thought it might be too high and result in sharp price declines.

On the products side, ULSD futures rose 5.53 cents on the day to $2.1254 gallon at settlement, up 3.84 cents or 1.84% on the week, while RBOB gasoline settled nearly 3% higher for a 5.82-cent gain to $2.0705 gallon, 2.3% higher on the week.

Baker Hughes reported Friday that the number of active U.S. oil rigs declined by one this week to 862, the first decline in the count since late March, though still 104 higher than in the equivalent week in 2017. The rig count has gained in the last 11 out of 12 weeks until this week, increasing by 65 in the second quarter and by 115 year to date.

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