US crude falls 3% on the week, settling at $65.81, amid US supply growth and OPEC uncertainty

Key Points
  • U.S. crude posted a second consecutive week of declines as American oil output comes close to matching that of top producer Russia.
  • Oil production jumped 215,000 barrels per day (bpd) in March to 10.47 million bpd, a new monthly record.
Pump jacks in an oil field over the Monterey Shale formation near Lost Hills, Calif.
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Crude futures fell on Friday, with the U.S. benchmark posting a second consecutive week of declines as American oil output comes close to matching that of top producer Russia.

North Sea Brent crude's premium over West Texas Intermediate (WTI) futures remained near three-year highs above $10 a barrel, having surpassed $11 on Thursday. The premium has doubled in less than a month, as a lack of pipeline capacity in the United States has trapped a lot of output inland.

"The big story in the market right now is this emerged disconnect between Brent and WTI. This is a three-year high in the spread differential," said John Kilduff, founding partner at energy hedge fund Again Capital.

WTI crude fell $1.23, or 1.8 percent, to $65.81 a barrel. For the week, WTI was down 3 percent, adding to last week's near 5-percent decline and shrugging off a 3.6-million-barrel drop in U.S. crude stockpiles last week.

Oil price decline 'temporary', says pro

Global benchmark Brent was down 81 cents, or 1 percent, at $76.75 per barrel by 2:26 p.m. ET. Brent was still set for an increase of half a percent on the week.

U.S. crude production has been rising to record levels since late last year. In March it jumped 215,000 barrels per day (bpd) to 10.47 million bpd, a new monthly record, the Energy Information Administration said on Thursday.

U.S. energy companies added oil rigs for a second week in a row. Drillers added two oil rigs in the week to June 1, bringing the total count to 861, the highest level since March 2015, General Electric's Baker Hughes energy services firm said in its closely followed report on Friday.

"The WTI/Brent spread is wide far down the curve and apparently not reflecting the notion that easing infrastructural constraints and slower U.S. supply growth should begin to reconnect both markets in the medium term," JBC said in a note.

Sources told Reuters last week that Saudi Arabia, the effective leader of OPEC, and Russia were discussing boosting output by about 1 million bpd to compensate for losses in supply from Venezuela and to address concerns about the impact of U.S. sanctions on Iranian output.

This pushed Brent to a three-week low below $75 a barrel on Monday. Brent recovered later in the week, however, when a Gulf source flagged that any rise in production would be gradual.

Crude in the red

Russia would be able to raise its oil output within months to levels last seen before a global production-cutting deal took effect if there is a decision to unwind the pact, a Russian Energy Ministry official said.

Oil prices extended losses early in the day as the dollar index spiked after U.S. President Donald Trump tweeted that he was "looking forward" to the monthly jobs report about an hour before its release. The president gets a preview of the data before it is made public. The report showed the United States added 223,000 jobs in May and unemployment ticked down to 3.8 percent.

Crude futures sometimes fall when the dollar rises because a stronger greenback makes commodities sold in dollars more expensive to holders of other currencies.

The relationship "had really broken down over the last month," said Kilduff.

"This morning it did appear you had the inverse correlation back on with the rise in the dollar from the tweet."

— CNBC's Tom DiChristopher contributed to this report.