NYMEX Oil Futures Soften as US Supply Concerns Fade

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- With operators in the U.S. Gulf of Mexico gradually returning production shut-in by Hurricane Ida nearly three weeks ago, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange fell Friday after industry data from Baker Hughes detailed a double-digit increase in the weekly U.S. oil rig count -- the largest rise in over a month -- easing concerns over undersupplied domestic oil market.

The Bureau of Safety and Environmental Enforcement reported Friday that about a quarter or 422,078 barrels per day (bpd) of current oil production in the offshore Gulf of Mexico remains offline, a marked improvement from 48.56% or 886,755 bpd reported shut-in on Monday. Operators in the region have been able to quickly restore pipeline service and power supplies after another hurricane, Nicholas, made its landfall over central Texas this week as a Category 1 storm. Unlike Ida, however, Nicholas turned out to be more of a rain event, allowing producers in the region to resume efforts to repair significant damages. Baker Hughes said this afternoon four rigs in the Gulf of Mexico were in operation Friday, steady versus the previous week, while a year ago there were 14 in operation. In total, the number of operating oil rigs in the U.S. increased 10 this week to 411, a fresh 17-month high. The U.S. oil rig count is up 232 from the comparable week a year ago.

Oil futures surged at midweek after a weekly inventory report from the U.S. Energy Information Administration showed total crude and petroleum product supplies declined more than 10 million barrels (bbl) in the week ended Sept. 10, with 6.4 million bbl of that drawdown realized in commercial crude stocks. At 417.4 million bbl, domestic crude supplies now stand about 7% below the five-year average. The larger-than-expected draw came as refinery run rates nationwide increased just 0.2% on the week and domestic production gained a modest 100,000 bpd after plunging 1.2 million bpd in the prior week.

This week's economic data was mixed, showing an unexpected rise in U.S. retail sales last month despite tumbling consumer sentiment and lackluster recovery in the labor market. The University of Michigan reported Friday morning that U.S. consumer sentiment edged slightly higher in early September -- the small gain of 1% still meaning that consumers expect the least favorable economic conditions in more than a decade.

"The decline in assessments of buying conditions for homes, vehicles, and household durables left all categories near all-time record lows, with the declines due to spontaneous references to high prices," noted Surveys of Consumers Chief Economist Richard Curtin.

Despite the downbeat outlook, U.S. retail sales rebounded 0.7% in August compared with calls for a 0.8% decline, that have prompted a myriad of upgrades to third quarter economic growth forecasts. The so-called core retail sales, a measure most closely corresponding to spending component of gross domestic product, actually increased by a larger 2%.

"We maintain our confidence in the historic strength of consumers and fully expect a record year for retail sales and a strong holiday season for retailers," said President of National Retail Association Matthew Shay.

Meanwhile, Centers of Disease Control and Prevention data showed the nation's seven-day case average decreased almost 14% in the week ended Sept. 10 to 136,448, falling for the first time since early June. The current seven-day hospitalization average for Sept. 1-7 also declined, down 4% from the previous week's average to 11,754. Meanwhile, about 208.3 million Americans have received at least one dose -- 72.7% of the total U.S. population -- and more than 177.4 million people have gotten both doses, about 63.4% of the population.

On the session, NYMEX October West Texas Intermediate futures fell $0.64 to settle just below $72 bbl and Brent crude for November delivery soften to $75.34 bbl. NYMEX October ULSD futures slipped 0.19 cents to $2.2091 gallon and front-month RBOB futures declined 0.99 cents to $2.1713 a gallon.

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

Liubov Georges