Oil futures dropped about 3% on Friday, prompting a turn lower for the week, as a downbeat employment report from the U.S. and trade data from China reinforced worries about global economic growth, and energy demand.
“Overall, crude remains heavily tied to broader economic sentiment in the current climate,” said Robbie Fraser, global commodity analyst at Schneider Electric.
Against that backdrop, April West Texas Intermediate crude
fell $1.96, or 3.5%, to $54.70 a barrel on the New York Mercantile Exchange. Prices were trading about 1.9% lower for the week. Global benchmark May Brent crude
was off $2.12, or 3.2%, to $64.18 a barrel on ICE Futures Europe, poised for a weekly loss of 1.4%.
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, and well below the 172,000 MarketWatch forecast. 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%.
“Oil was trying to ignore the doom and gloom from [ECB President Mario] Draghi, but the China data had them run for the exits,” said Phil Flynn, senior market analyst at Price Futures Group.
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 Flynn.
Oil ended higher Thursday despite global equity market weakness, with U.S. crude buoyed in part after data showing a large rise in domestic crude stockpiles was offset by a much larger-than-expected drop in gasoline inventories. Gasoline futures ended Thursday at a more-than-four-month high.
The oil “market is well supplied and demand is wobbly at best,” said Robert Yawger, director for energy at Mizuho Securities. U.S. crude production is at all-time high, the Energy Information Administration reported Wednesday that storage up 7 million barrels last week and stand at 27 million above last year, he said.
“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, often referred to as OPEC-plus, 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
was down 3.4%. to $1.743 a gallon after settling Thursday as its highest since late October. For the week, the contract is looking at a weekly rise of 0.7%. April heating oil
declined 3%, to $1.953 a gallon, trading 2.4% lower on the week.
April natural gas
added 0.2% to $2.872 per million British thermal units, poised for a weekly rise of about 0.5%.
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