Oil prices recorded their largest weekly fall in two years amid tumult in financial markets and rising expectations for US production.
Futures declined in each of five sessions ended Friday, and US benchmark West Texas Intermediate dropped below $60 a barrel for the first time since December.
Crude eluded the worst of the volatility in equities markets, but prices nevertheless felt pressure as trend-following hedge funds abandoned oil positions to offset losses elsewhere.
Exchange and government data released on Friday showed that hedge funds and other money managers had slightly reduced what had been their net long, or bullish, positions in crude futures from the preceding week. But the positions still amounted to more than a billion barrels equivalent, suggesting strong hopes of a price rebound.
“The equity volatility is going to sap liquidity when . . . managed money may need to get out,” said Scott Shelton of brokers United ICAP.
Nymex March WTI crude fell 9.6 per cent on the week to settle at $59.20 a barrel. ICE April Brent, the international benchmark, dropped 8.5 per cent to close at $62.79 a barrel.
Robust global demand, a weakening dollar and curtailed supplies from Opec countries and Russia had propelled oil prices to highs last month. Brent punched above $70 in late January.
But markets have been unnerved by signs that higher prices have led US producers to increase output. The US Energy Information Administration this week estimated that US crude production had reached a record 10.3m barrels per day. A reported rise in US crude oil stockpiles on Wednesday also ran counter to the narrative that the market is tightening.
Independent US oil companies reinforced the message of production increases as they released quarterly results. Pioneer Natural Resources this week forecast its production from the Permian basin of Texas would grow by as much as 24 per cent in 2018, despite outages due to freezing weather in early January.
“When you see producers reporting, you tend to see oil prices move lower as the market digests the fact that producers are quite resilient despite calls for capital discipline,” said Michael Cohen, oil analyst at Barclays. “Capital discipline does not equal austerity.”
In a delayed reaction to the recent rally, US drillers added 26 onshore oil rigs this week, bringing the total to 791 — the highest since April 2015, the oilfield services company Baker Hughes reported.
Oil’s weakness contributed to broader losses in commodity markets. The Bloomberg Commodity Index, which contains energy, metals and agricultural futures, fell 3.9 per cent for the week.
Source: Financial TimesPrevious Next