Oil Futures Firm

WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled modestly higher Friday. The U.S. benchmark registered a 2.7% weekly decline and the international benchmark lost 2% on the week, as a flare-up in Middle East tensions countered concerns over a slowing global economy and reduced demand expectations.

The market narrative of sluggish economic growth and demand destruction spurred this week's volatile trade in oil futures and other risk assets.

Oil futures' upside was capped late in the week on a downward revision in demand forecasts from both the International Energy Agency (IEA) and the Organization of the Petroleum Exporting Countries (OPEC). In its latest Oil Market Report released Friday, the IEA cut its demand expectation by 100,000 barrels per day (bpd) for 2019, while OPEC revised world oil consumption lower by 70,000 bpd to 1.14 million bpd, pointing to a slower growth in Organization for Economic Cooperation and Development (OECD) countries.

West Texas Intermediate and Brent came under selling pressure midweek after the latest government data showed another build in domestic oil supplies, providing further support for the case of lackluster demand. The Energy Information Administration said on Wednesday domestic crude and product inventories surged last week to a 23-month high. U.S. commercial crude oil inventory increased 44.1 million barrels (bbl) or 10% so far in 2019, with the supply build more pronounced in the second quarter, which also coincides with the tariff hike on Chinese imports and a lower domestic manufacturing output.

Domestic crude production eased 100,000 bpd from 12.4 million bpd record high during the first week of June, which correlates with declining number of active oil rigs in the United States. Baker Hughes reported U.S. oil active oil rigs dipped one to 788, a fresh 16-month low, with the oil rig count having now declined for the fifth week out of the past six weeks. The U.S. oil rig count is down 75 against year ago, with 97 rigs taken out of service, year to date. Goldman Sachs expects U.S. production to surge in the second half of the year, as new infrastructure in the Permian Basin comes online, exerting more pressure on the oil market.

WTI and Brent futures received an unexpected bump Thursday from resurging tensions in the Middle East after an attack was reported against two oil tankers near the Strait of Hormuz. The latest incident marked the sixth attack on oil tankers in the Persian Gulf, with shipping companies reportedly raising serious concerns on security of operating such vessels in the regional waters, according to Financial Times. U.S. Secretary of State Mike Pompeo blamed Iran for the incident, as well as attacks a month earlier on pipelines in Saudi Arabia and on ships in waters near Fujairah. Market analysts note the key uncertainty remains U.S. response to an alleged attack, which could include further sanctions against Iran and deployment of additional American troops to the region.

NYMEX July WTI futures shifted $0.23 higher to settle at $52.51 bbl, while Brent crude on the Intercontinental Exchange finished the session $0.70 higher at $62.01 after settling below $60 bbl midweek. NYMEX July ULSD futures settled 2.28cts higher at $1.8294 gallon, while July RBOB futures advanced 1.26cts with a $1.7325 gallon settlement.

Liubov Georges can be reached at liubov.georges@dtn.com

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