Crude futures fell Friday after the International Energy Agency said global oil markets will remain oversupplied at least through 2016.
NYMEX January crude settled $1.14 lower at $35.62/b. ICE January Brent settled down $1.80 at $37.93/b.
Warm weather in the Northeast US expected to last through the weekend signaled less heating oil demand, causing a big price drop in NYMEX ULSD.
NYMEX January ULSD was the weakest element in the oil complex, closing 7.95 cents lower at $1.1456/gal. NYMEX January RBOB settled almost unchanged, up 13 points to $1.2815/gal.
The IEA said in its monthly report Friday the current oil glut should remain into late 2016, as the demand response from falling oil prices was "beginning to fade."
Demand growth was expected to slow next year to 1.2 million b/d, down from 1.8 million b/d this year, while non-OPEC supply should fall by 600,000 b/d, IEA said.
"Shrinking non-OPEC supply and on-trend demand growth should lead to a marked slowdown in the pace of global stock builds next year," the Paris-based organization said. "However, as extra Iranian oil hits the market, inventories are expected to swell by 300 million barrels."
Despite the market's price reaction, the IEA report could be considered "neutral overall" as it made no significant revisions to supply or demand and reiterated the inventory overhang, analysts at Sanford C. Bernstein said in a note.
"The outlook for 2016 in the IEA and our model is much more balanced" and by late next year should begin to see inventories clearing, they said.
BRENT/WTI SPREAD NARROWS
NYMEX January crude bounced off its intraday low -- $35.35/b -- Friday afternoon when Baker Hughes reported the number of rigs drilling for oil in the US fell by 21 this week to 524.
The US oil rig count has dropped 15 weeks in a row. The number of active US oil rigs stands at a level not seen since April 2010.
The ICE Brent/WTI January spread narrowed Friday to $1.72/b, the tightest gap since November 17 as congressional lawmakers are considering including a provision to lift longstanding US crude export limits in the omnibus spending bill.
The ICE Brent/WTI March spread was as little as 15 cents/b Friday, compared with Monday's settle at $1.03/b.
These negotiations, however, appear stalled by Democrats who want concessions, including an extension of wind and solar tax credits, which many Republicans see as too much of an ask.
The Obama administration is opposed to any change to crude export policy made through Congress and has threatened to veto previous legislation to lift crude export restrictions. White House officials have stopped short of saying they would veto an omnibus bill which includes provisions to lift crude export restrictions.
White House Press Secretary Josh Earnest repeated the administration's opposition to congressional action on crude exports during a press briefing Friday.
The shrinking difference between Brent and WTI also reflects the "oversupply situation here in the US and the oversupply elsewhere in the world, and the barrels are looking for any outlet," Andy Lipow, president of Lipow Oil Associates, said.
ULSD PLUMMETS ON WARM WEATHER
NYMEX January ULSD touched $1.11435/gal at one point Friday, an intraday low not seen since March 2009, triggered by forecasts calling for record-setting warm temperatures in the Northeast US this week.
Not only is heating oil likely to be weak, but supplies are already plentiful on the Atlantic Coast.
USAC's combined stocks of low and ultra low sulfur diesel totaled 52.885 million barrels, a 108% surplus to the five-year average for the same reporting period.
NYMEX ULSD's time spreads weakened Friday. The January/June contango widened 2.59 cents to 14.13 cents.
"That widening of the forward curve has spurred a great deal of interest in storing barrels which is helping to keep the bottom from falling out in cash markets across the US," TAC Energy analysts said in a morning note.
RBOB MOVES HIGHER
NYMEX RBOB moved counter to the rest of the oil complex for a third day in a row.
On Thursday, BP shut a 250,000 b/d reformer at its Whiting, Indiana, refinery. There is no timeline for restart, a source familiar with refinery operations said Friday.
Ongoing strikes at European refineries, perhaps foreshadowing fewer US gasoline imports, could also be lending support.
ExxonMobil's 320,000 b/d Antwerp, Belgium, refinery will likely halt operations for safety reasons because of a strike that began Wednesday, local media reported Friday.
And Total's refinery in Normandy, France, started winding down operations Friday because of a labor union strike taking place at the 247,000 b/d capacity facility. Full shutdown is supposed to take two to three days.
