Oil Futures Rally Into Close

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

CRANBURY, N.J. (DTN) -- The nearest delivered oil futures contracts on the New York Mercantile Exchange and Brent on the Intercontinental Exchange rallied throughout Friday's session to end with healthy gains, although pared the advance from new and fresh highs, and registered sharp increases on the week, as investors expect ongoing improvements in fuel consumption as business re-openings continue and the summer season sparks greater driving demand as families pack into their vehicles for road-trip vacations.

Despite more than 20 million people receiving continued unemployment insurance, a beefy $600 in additional weekly benefits under the CARES Act has been a bridge over the economic hole caused by the government lockdown, while the Paycheck Protection Plan was estimated to have saved as many as 55 million jobs according to White House economic adviser Larry Kudlow. These actions have limited the despair for millions, prompting guarded optimistic sentiment by consumers.

Implied gasoline demand may have slowed at about 7.9 million barrels per day (bpd), 20% below year ago, but the Brent gasoline crack spread moved above $10 per barrel (bbl) this week for the first time since early March ahead of the lockdown following the presidential declaration that the COVID-19 pandemic was a national emergency. Bolstering the crack has been steady discipline by U.S. refiners, with the run rate averaging 72.5% during the 4 weeks ended June 12, according to the Energy Information Administration, 20% below year ago.

U.S. crude production was again throttled back, with shut-ins last week due to Tropical Storm Cristobal amplifying the decline. EIA reported output down 600,000 bpd at 10.5 million bpd for the week ended June 12. On land drilling should continue to decline, with Baker Hughes this afternoon reporting a 10-rig decline in the U.S. count of oil rigs in operation this week through Friday to a 189 11-year low. The weekly decline was the 14th straight, while the oil rig count is down 600 against year ago.

NYMEX July West Texas Intermediate futures rallied to a $40.49 15-week high on the spot continuous chart before settling up $0.91 at $39.75 bbl ahead of expiration Monday afternoon, with the August contract ending at an $0.08 premium. July WTI futures rallied $3.49 or 9.6% this week. ICE August Brent crude advanced to a $42.92 bbl high and settled $0.68 higher at $42.19, with the prompt month spread now backwardated.

NYMEX July RBOB futures registered a $0.0139 advance on the session to settle at $1.2716 gallon, and surged $0.1473 or 13.1% since prior Friday, paring a rally to a $1.2888 15-week spot high. Gasoline's market structure is backwardated through September delivery.

NYMEX July ULSD futures ended the week at $1.2114 gallon for a $0.0128 gain on the session and $0.11 or 10% advance on the week, backing off a $1.2288 14-week spot high.

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

Brian Milne