Oil Futures Settles Higher Friday

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Intercontinental Exchange Brent pared earlier gains, yet settled higher Friday afternoon, finding some support in steep production declines from Organization of the Petroleum Exporting Countries (OPEC), while growing concerns over weakening global economic and oil demand growth underpin the market's bearish sentiment.

After two consecutive session declines, NYMEX September West Texas Intermediate futures gained $0.40 to settle at $54.87 per barrel (bbl) after trading up to $55.67 bbl. The WTI October futures at a $0.06 discount to the front-month delivery contract.

ICE October Brent futures contract traded up to $59.50 bbl but settled $0.41 higher at $58.64 a bbl.

NYMEX September ULSD futures finished 0.21 cents higher at $1.8128 gallon after trading up to $1.8350 gallon while the September RBOB contract advanced 2.04 cents to settle the session $1.6568 gallon, having traded up to $1.6660 gallon.

Oil futures managed to claw back a fraction of heavy losses this week amid growing U.S. crude stocks, weakening demand outlook and volatility in financial markets. Against bearish headwinds, OPEC reported Friday morning its crude production plummeted to a better than five-year low in July, aided by continued over compliance from Saudi Arabia along with steep production declines in Iran and Venezuela. According to its latest monthly oil market report, OPEC's output declined for 10th consecutive month to reach 29.61 million barrel per day (bpd), with Saudi Arabia shouldering the lion's share of the steep drop in a continued attempt to balance the global oil market.

The industry group cut its world oil demand forecast to 1.1 million bpd for the current year, down 40,000 bpd from July estimates. Paris-based International Energy Agency and the US Energy Information Administration have also both lowered their demand forecasts for 2019 and 2020, respectively.

At the center of the market's concern over future demand is weakening economic growth, hammered by continued deceleration in global manufacturing output and policy-related risks to trade. Despite the three-month delay in applying 10% tariff on nearly $156 billion in Chinese exports, U.S. stocks tumbled 800 points midweek on inverted yield curve in bond markets, indicating a continued erosion in investors' confidence. Meanwhile, economic data from major global economies continue to flash red signs of looming recession. Germany's economic growth fell 0.1% in the second quarter, while the annual growth rate slowed to 0.5% from 0.9% growth during the first three months of the year. In China, industrial output plunged to a 17-year low, down to 4.8% last month from 6.3% in June, according to China's National Bureau of Statistics.

Fueling the midweek sell-off in oil futures was EIA data that showed a second consecutive weekly build in U.S. crude inventories in the week ended Aug. 9 amid lower refinery rates and elevated imports, while production held at 12.3 million bpd.

Baker Hughes earlier reported the number of active rigs seeking oil in the United States increased for the first time in seven weeks, up six in the week ended Friday to 770. Despite this week's uptick, the rig count is down 23 in the third quarter while 99 lower than the same week in 2018.

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

(BAS)

Copyright 2019 DTN/The Progressive Farmer. All rights reserved.