Oil prices hold gains for week despite Friday tumble
Oil prices fell heavily Friday on profit-taking, losing nearly all of the previous session’s sizeable gains.
But the market netted gains for the week amid hopes of an OPEC-Russia deal to tackle a supply glut later this month.
US benchmark West Texas Intermediate for delivery in October slid $1.74 to $45.88 a barrel compared from Thursday.
Brent North Sea crude for November delivery tumbled $1.98 to $48.01 a barrel.
Both main contracts had soared more than two dollars Thursday and Brent briefly went above $50 a barrel after the US Department of Energy said the country’s commercial crude inventories slumped by 14.5 million barrels, the sharpest weekly drop in 17 years.
But analysts said the market quickly realized the fall was a one-off move caused by import cutbacks as Hurricane Hermine plowed through the Gulf of Mexico and up the east coast, rather than a sign of stronger consumption. Most felt that stocks were likely to rebound quickly.
“The reason behind the enormous drawdown is transitory, and does not influence the demand-supply situation of the oil market,” said IG market strategist Bernard Aw.
“One week’s worth of data does not make a trend.”
– OPEC-Russia spotlight –
Even so, oil prices on Friday were up from a week ago, WTI by 3.2 percent and Brent 2.5 percent, amid rising expectations that OPEC producers and Russia will try to strengthen the market perhaps with a production cap in a meeting in Algiers later this month.
Earlier this year Iran’s determination to build production after suffering from lengthy nuclear-linked sanctions on its exports has however made agreeing OPEC-wide limits difficult.
But with output now nearing 4 million barrels a day, Tehran might not be more amenable.
“Of course both Russia and Saudi Arabia would have liked to have a higher oil price than the current $50,” said Bjarne Schieldrop, chief commodities analyst at SEB Markets.
“Over the past week they have talked about stabilising the market. But what do they really mean, because the oil market is today in many ways actually fairly balanced?”
In a client note Friday, Morgan Stanley said it sees the possibility that the market will still suffer weakness from oversupply going into 2018.
For one, it said that supply could increase as producers in the United States, Iraq, Iran, Nigeria and Libya all have room and desire to raise output.
“Producers are adapting to sustained low prices, limiting declines and beginning to invest again,” it said.
“As long as the market remains oversupplied, we would expect oil to remain in a similar $35-55 trading range as it has most of this year.”