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Oil drops Friday as U.S., China data feed global growth worries, still logs a weekly gain

Por Myra P. Saefong / MarketWatch

Petroleumworld 03 08 2019

Oil futures finished lower Friday as a downbeat employment report from the U.S. and trade data from China reinforced worries about global economic growth and energy demand.

Prices, however, pared much of their earlier losses to score a gain for the week as a third-consecutive weekly decline in U.S. oil-drilling rigs pointed to a potential fall in domestic production activity. Output stood at a record 12.1 million barrels a day last week.

Active U.S. rigs drilling for oil fell by nine to 834 this week, according to data Friday from Baker Hughes BHGE, +1.42%

Against that backdrop, April West Texas Intermediate crude CLJ9, +1.37%  declined by 59 cents, or 1%, to settle at $56.07 a barrel on the New York Mercantile Exchange after dropping earlier to as low as $54.52. Prices rose 0.5% for the week, according to Dow Jones Market Data. Global benchmark May Brent crude LCOK9, +1.35% lost 56 cents, or 0.8%, to $65.74 a barrel on ICE Futures Europe, but still saw a weekly rise of 1%.

“Overall, crude remains heavily tied to broader economic sentiment in the current climate,” said Robbie Fraser, global commodity analyst at Schneider Electric.

U.S. equities declined Friday , fueling risk-off sentiment, as data revealed that the U.S. added just 20,000 new jobs last month , the smallest gain since September 2017. Asian markets also saw a sharp retreat after China reported that exports fell by a much larger-than-expected 20.7% in February, compared with the prior year. Weak economic data raise concerns of a slowdown in energy demand.

“Recent downward revisions to European and global growth estimates by central banks and consensus estimates continue to test the sustainability of the current multi-year bull market” for equities, said Fraser. The European Central Bank on Thursday slashed its 2019 forecast for gross domestic product growth to 1.1% from a previous 1.7% and earlier this week, China lowered its economic growth target this year to between 6% and 6.5%.

Over in Norway, the Finance Ministry said Friday that the country's $1 trillion sovereign-wealth fund would drop shares of energy companies that engage in exploration and production of oil and gas from its portfolio.

The news may be bearish for the market for now, but the cut in investment is actually “long term bullish as it will reduce future supply,” said Phil Flynn, senior market analyst at Price Futures Group.

Oil ended higher Thursday , buoyed in part after data Wednesday showing a large rise in domestic crude stockpiles was offset by a much larger-than-expected drop in gasoline inventories.

The oil “market is well supplied and demand is wobbly at best,” said Robert Yawger, director for energy at Mizuho Securities.

“Libya production just came back online,” he said, as the country reopened its largest oilfield this week, following its closure in December, and “Russia is in no hurry to cut production and lose market share.”

“A lot of crude oil out there. Global economy wobbly. All about supply-demand, which is reflected in price curve,” with WTI in contango, said Yawger. In contango, prices for future delivery rise above the spot market, which can encourage traders to store oil.

Meanwhile, a survey from S&P Global Platts Thursday showed output by the Organization of the Petroleum Exporting Countries in February fell to a nearly four-year low. OPEC and allied producers implemented output cuts at the beginning of the year. The Joint Ministerial Monitoring Committee, which monitors compliance with the reductions, is scheduled to meet in Azerbaijan on March 18.

“The combination of OPEC-plus cuts, curtailments in Canadian production and further sanctions-related declines in Iranian exports should be sufficient to drive OECD inventories back below their trailing 5-year average,” said Jason Gammel, equity analyst at Jefferies, in a note. “In fact, the market could be quite tight in early 2019 and the forward curve could very well shift into backwardation,” he said, referring to a condition in which spot oil prices trade above the futures price.

But he expects U.S. output growth to reaccelerate in the second half of this year as incremental pipeline capacity is installed. “This means that by early 2020 the market could move back into oversupply…” he said.

In other energy trade, April gasoline RBJ9, +1.86%  fell 0.2% to $1.802 a gallon after settling Thursday as its highest since late October. For the week, the contract saw a weekly rise of 4.1%. April heating oil HOJ9, +0.38%  declined 0.6%, to about $2 a gallon, ending less than 0.1% lower on the week.

April natural gas NGJ19, -2.72%  ended little changed at $2.865 per million British thermal units, for a weekly rise of 0.2%.


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