Oil Futures End Lower Friday

Brian L Milne
By  Brian L. Milne , DTN Refined Fuels Editor

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures nearest delivery and Intercontinental Exchange Brent crude settled lower Friday and posted weekly losses despite the prior Friday, Dec. 7, production agreement reached in Vienna amid increasing signs of a global economic slowdown that returned to the fore following the overnight release of bearish industrial and consumer data for China.

Losses on the week also follow last week's agreement cutting oil production by 1.2 million barrels per day (bpd) during the first half of 2019 reached by the Organization of the Petroleum Exporting Countries, Russia and nine non-OPEC oil producers. Militants in Libya have compelled a force majeure on as much as 315,000 bpd in oil exports from the North African nation which is exempt from the OPEC+ agreement, while Canada's Alberta province has mandated a 325,000 bpd cut in production during the first quarter 2019 in an effort to clear an inventory overhang that has severely undercut asking prices for Canadian crude.

Instead, traders focused on overnight data showing slowing growth in China's industrial and manufacturing sectors and an unexpected decline in retail sales in November, suggesting the Washington-Beijing trade dispute is taking a toll on China's economy, and worry that the softness will spread globally. The sentiment comes despite perceived progress in talks between the United States and China during their 90-day truce through March 1 in their trade dispute.

Eurozone data released this morning showed sluggish growth in manufacturing and services slowed further. In France, data for manufacturing and services showed contraction in December, with the country contending with widespread riots this month over a plan to raise fuel taxes to discourage driving that has since been discarded.

U.S. equities sold off hard, with the Dow Jones Industrial Average down more than 500 points at one point late afternoon. The selloff ignored bullish data from the United States, with the Federal Reserve reporting a sharper than expected increase in industrial production in November, with a modest uptick in November retail sales also beating expectations.

"While global economic data has slowed in recent weeks we should see a pickup in 2019 after the FED completes its interest rate cycle. Also if trade tensions with China can continue to ease this should provide the underlying support to boost oil through near term resistance at $55," said Phillip Streible, Senior Market Strategist with RJO Futures.

The Federal Open Market Committee meets Dec. 18-19 when they are expected to lift the federal funds rate 25 basis points to 2.25% by 2.5%. The Fed is widely believed to pause rate hikes in 2019 amid turmoil in equities during the fourth quarter and slowing economies overseas.

Higher borrowing costs would slow the growth pace of the U.S. economy and likely boost the dollar against global currencies that could contribute to weakness in emerging economies with high debt pegged to the dollar. A stronger dollar would pressure West Texas Intermediate futures and raise the cost of oil procurements for foreign buyers since oil trades globally in the U.S. currency.

The U.S. dollar rallied to a nearly 18-month high Friday.

NYMEX January WTI futures settled down $1.38 on the session and $1.41 on the week at $51.20 per barrel (bbl), with ICE February Brent settling $1.17 lower Friday and down $1.39 from prior Friday at $60.28 bbl. NYMEX January ULSD futures settled down 3.12 cents to $1.8453 gallon, accounting for most of the 4.09-cent weekly loss. January RBOB futures fell 4.39 cents on the day and 5.15 cents on the week to settle at $1.4343 gallon.

Brian L. Milne can be reached at brian.milne@dtn.com

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Brian Milne