Oil Futures Settle at New Lows Friday

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures nearest delivery and Brent crude on the Intercontinental Exchange settled at new lows Friday following a tumultuous, fast-moving week of negative headlines that heightened investor anxiety while the market expects growth in oil demand to slow more than previously expected.

There was little to get merry about this week, with oil futures registering steep losses from prior Friday, with both West Texas Intermediate and Brent futures losing 11% of their value on the week.

Bearish news rolled in like crashing waves, including a projection by the Energy Information Administration that tight shale oil production in seven regions of the United States would increase 134,000 barrels per day (bpd) from this month to 8.166 million bpd in January despite sliding WTI prices, deepening the contango in the U.S. crude benchmark. This afternoon, Baker Hughes reported a ten rig increase in the number of rigs drilling for oil in the United States, with the U.S. oil rig count up 20 in the fourth quarter despite the selloff.

Climbing U.S. production continues to vex the Organization of the Petroleum Exporting Countries, with OPEC, Russia and nine non-OPEC oil producing countries just two weeks ago agreeing to cut 1.2 million bpd during the first six months of 2019. Canada provided an assist, where Alberta mandated 325,000 bpd in production cuts during the first quarter to work down excess inventory and boost a heavily discounted price for Canadian crude. Baker Hughes reported Canada's oil rig count tumbled by 37 to 58 this week.

The OPEC+ production cuts have failed to stabilize the market, with news suggesting Saudi Arabia will cut more than its reported 250,000 bpd quota in an effort to halt the slide in crude prices.

Mounting signs of a global economic slowdown also took a heavy toll on oil prices, but failed to deter the Federal Reserve from increasing the federal funds rate 25 basis points for the fourth time this year, now at 2.5%. The Fed said the U.S. economy remains strong and employment is robust, with the unemployment rate at a 49-year low. Fed Chairman Jerome Powell gave short sellers an early Christmas gift, indicating Wednesday that although the U.S. economy faces "headwinds," the central bank would likely lift the short-term bank rate two more times in 2019 and once in 2020. Major U.S. equity indices continue to sell off.

This morning, the Bureau of Economic Analysis in its third of three readings estimated the U.S. economy grew at an annualized rate of 3.4% in the third quarter, down from its two preceding readings of 3.5%.

Markets are also under pressure on mounting risk that the government will shut down at midnight over an impasse about U.S. President Donald Trump's demand that a spending bill includes funding for a wall to be built along the Mexican border, while Senate Democrats believe they have political leverage over the president and oppose a House-passed bill that includes the funding.

NYMEX February WTI futures settled down $0.29 at a $45.59-per-barrel (bbl) 17-month low on the spot continuation chart, while down $5.61 on a spot month basis, with the January contract expiring on Wednesday. ICE February Brent crude lost $0.53 on the session and $6.46 bbl on the week with a $53.82 bbl better-than-15-month spot low settlement.

NYMEX January ULSD futures declined 1.7 cents to $1.7327 gallon, the lowest settlement on the spot continuous chart since early September 2017, while erasing 11.26 cents, or 6.1%, in value this week. January RBOB futures eased 0.41 cent to a 25-month low settlement on the spot continuous chart, and is down 11.6 cents, or 8.1%, from prior Friday.

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

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