Oil futures reversed course to finish higher on Friday, with a third-weekly decline in the number of active U.S. rigs drilling for oil contributing to a price rise for the week.
The fall in the rig count, along with a government report issued a day earlier also showing a third week of falling domestic crude supplies, helped calm trade war-related worries about energy demand.
Baker Hughes /zigman2/quotes/205323712/composite BHGE +0.41% on Friday reported that the number of active U.S. rigs drilling for oil declined by four to 738 this week. That followed two consecutive weekly declines in the oil-rig count.
The data followed a third-straight weekly decline in U.S. crude inventories. On Thursday, the Energy Information Administration said U.S. crude supplies declined by 4.8 million barrels for the week ended Aug. 30.
West Texas Intermediate crude for October delivery tacked on 22 cents, or 0.4%, settle at $56.52 a barrel on the New York Mercantile Exchange after ending Thursday a few cents-per-barrel higher. WTI saw a weekly gain of 2.6%, based on the most-active contract, according to Dow Jones Market Data.
The global benchmark, November Brent crude , rose 59 cents, or 1%, to end at $61.54 a barrel on ICE Futures Europe. It tallied a weekly rise of 3.9%.
Marshall Steeves, energy markets analyst at IHS Markit, told MarketWatch that he was a bit surprised to see the move higher after the rig-count data.
“There has been a divergence between the rig count and production, given recent weekly EIA data showing a record level the week before last at the same time that the rig count has been in decline,” he said. “I think technological innovation and improved output from existing wells is behind the rise in production with fewer rigs.”
“Overall this is a broadly sideways market meaning there is day-to-day volatility within a range bound market,” said Steeves.
In economic news, the U.S. economy added just 130,000 new jobs in August, marking the smallest increase in three months. Analysts polled by MarketWatch expected the nation to add 173,000 jobs in August, up from 164,000 in the previous month. The unemployment rate was unchanged at 3.7%, as expected.
“The jobs report was mixed and probably leaves the [Federal Reserve] on track to cut the funds rate at their next meeting,” said Steeves. “The 130,000 headline number disappointed, but the participation rate was higher and wages were higher, so it looks like a slowing labor market with some positives.”
Prices on Thursday got an initial boost from the U.S. supply decline, then erased nearly all of their gains by the end of that session.
The EIA report was bullish, said analysts at Sevens Report Research. However, “it was not bullish enough for those gains to hold into the close as there are simply too many headwinds on energy right now including rising production globally; demand concerns linked to the trade war and recession fears, and recently less-aggressive jawboning out of Iran.”
“Until we see more material improvements in the fundamental backdrop of the energy market, WTI will remain rangebound with a pivot point in the mid-$50s,” they said in the latest newsletter.
Meanwhile, Bjørnar Tonhaugen, head of oil market research at Rystad Energy, said gains for oil will hinge on averting a global recession, continued cuts by the Organization of the Petroleum Exporting Countries and the impact of 2020 regulations by the International Maritime Organization, or IMO, to reduce sulfur emissions from fuel oil.
“Markets can balance with an extension of OPEC cuts through 2020, as we believe the IMO 2020 regulations will create more demand for crude oil,” he wrote in a research note.
“Moreover, the global economy needs to avoid a sharp slowdown and oil demand recover to more normal growth rates of between 1 million and 1.2 million barrels per day,” said Tonhaugen.
A survey from S&P Global Platts released early Friday showed that August compliance with the output-cut deal that began at the start of this year was at 103% among the 11 members with the production quotas. Still, OPEC’s crude output edged up by 50,000 barrels a day in August to 29.93 million barrels a day, the survey said.
Oil has gained this week on the back of news of heightened tensions in the Middle East, which could disrupt supplies and optimism that the U.S. and China may come back to the negotiating table to hammer out a resolution to their yearlong trade dispute.
Meanwhile, product prices on Nymex moved up along with oil. October gasoline rose 2.8 cents, or 1.8%, to $1.5742 a gallon, with the contract 2.9% higher for the week. October heating oil added 1.2 cents, or 0.6%, to $1.9003 a gallon, for a weekly rise of 3.4%.
Natural-gas futures climbed, with their October contract at $2.496 per million British thermal units, up 6.1 cents, or 2.5%. It finished 9.2% higher for the week—the largest weekly percentage gain since January. Economists at Capital Economics said the week’s rise “represents the start of the usual seasonal upturn in prices.”