Oil Futures Mixed on Trade Impasse

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude on the Intercontinental Exchange settled shallowly mixed Friday afternoon, with the crude contracts posting modest weekly increases amid growing market skepticism of any enduring progress in talks between China and the United States.

The U.S. dollar strengthened, reaching a 98.245 three-week high in afternoon index trading, also weighing on U.S. crude oil contracts.

The dollar rallied as the 10-year Treasury yield jumped to a three-year high this week, erasing a recessionary signal when the 10-year note was at a discount to short-term bonds.

Following back-and-forth trading, NYMEX December West Texas Intermediate futures settled up $0.09 at $57.24 per barrel (bbl), with ICE January Brent edging $0.22 higher to a $62.51 bbl settlement. Both benchmarks advanced more than 1% on week.

In contrast, products posted fractional weekly declines, while also drifting slightly lower on Friday. NYMEX December ULSD contract dipped 0.22 cent to end the session at $1.9181 gallon, a one-week low. NYMEX December RBOB eased 0.18 cent to a $1.6337 gallon settlement.

U.S. President Donald Trump said Friday the United States did not agree to roll back existing tariffs on some $156 billion of Chinese imports, reversing weeklong optimism that two countries are nearing an end to the 18-month-long trade war.

U.S. stock indexes tumbled after Trump's remarks, dollar briefly fell against the yen, and oil futures plunged nearly 2% to intrasession lows. The oil complex later recovered after Baker Hughes data showed the number of active oil rigs in the United States dropped to a 30-month low during the first week of November. U.S. drilling activity has been declining now for the third straight week, down 29 since late October and more than 200 rigs below the comparable week a year ago.

Despite the continued decline in U.S. oil rigs, production remained at a record high 12.6 million barrels per day (bpd) for the fifth consecutive week, according to the latest supply data from U.S. Energy Information Administration.

Midweek inventory report was surprisingly bearish, showing an oversized 7.9 million bbl increase in U.S. commercial crude stocks as of Nov. 1, leaving analysts scratching their heads as to how such a large build occurred. The build came despite a prolonged outage along the 590,000 bpd Keystone Pipeline due to a leak in North Dakota, with the pipeline delivering Canadian crude oil to Cushing, Oklahoma, along with refineries in Illinois. The pipeline was shut Oct. 29, with TC Energy, operator of the pipeline, indicating a partial restart could come as soon as Sunday, Nov. 10, provided regulatory approval is granted.

EIA reported Cushing supply increased 1.7 million bbl to 47.7 million bbl during the week reviewed, widening a surplus against the five-year average.

Bank of America Merrill Lynch took a longer term view in commenting on the weekly U.S. crude build reported by EIA, calling the large build transitory. "While in the last throes of the shoulder season for refiners, outsized builds are to be expected, with this past week seeing several planned maintenance events," said Doug Leggate, research analyst with the bank.

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

(CZ)