Oil prices fell on Friday after the US dollar rose on better-than-expected employment data which pressured greenback-valued commodities as well as data showing increased US crude production in March.  Anadarko photo.

US oil prices down by almost 2 per cent

A higher US dollar bolstered by strong employment data which pressured greenback-denominated commodities, along with rising US crude production resulted in lower oil prices on Friday.

US West Texas Intermediate futures settled the day at $65.81/barrel after falling $1.23.  US WTI was on track for a drop of about 3 per cent for the week and last week, was down nearly 5 per cent.

Brent crude dropped 77 cents to end the session at $76.79/barrel and is on track for a 0.4 per cent gain for the week.  The Canadian Crude Index rose 1 cent to $40.34.

The discount between Brent and US WTI widened, ending up at $11.02 on Friday after hitting a session high of $11.57, the largest since 2015.

Growing US crude production and insufficient pipeline capacity trapping some crude inland have both pressured WTI prices and led to the doubling of the Brent discount in a month.

According to the US Energy Information Administration, US crude production rose in March to 10.47 million barrels per day (b/d).  The EIA added that, on a weekly basis, US crude output rose to 10.8 million b/d last week and is now closing in on Russia, the world’s top producer.

“The weekly number suggesting U.S. production is really strong and continuing to rip higher,” Matt Smith, director of commodity research at ClipperData told Reuters.  He added that without adequate pipeline capacity to move oil to the coasts, “we’re going to continue to see some weakness in WTI”.

In the weekly Baker Hughes rig count report, data showed the US oil rig count rose in eight of the past nine weeks and is now up by two to 861, up 128 over this time last year.  In Canada, the oil rig count rose by 21 to 56 and sits unchanged from one year ago.

Data from the US Labor Department showed domestic job growth accelerated in May, which helped drop the unemployment rate to an 18-year low of 3.8 per cent.  According to the report, strong wage gains were noted, which heightened expectations that the Federal Reserve would boost interest rates in June and later in the year as well.

John Kilduff, partner at Again Capital Management told Reuters that the stronger US dollar prompted investors to sell off dollar-denominated commodities.

Last week, Saudi Arabia and Russia discussed increasing output to compensate for dropping Venezuelan production as well as looming US sanctions against Iran.

A Reuters’ Gulf source said that any increase in crude production would be gradual.  A Russian Energy Ministry official told Reuters that Russia could boost its production within months if the cartel and other participants agreed to end the pact.