Oil prices tumbled more than 2 per cent on Friday, on track for the biggest weekly drop in a month, on renewed concerns that increasing U.S. production and high inventories will thwart OPEC’s attempts to reduce the global crude glut.
U.S. crude futures fell below $50 a barrel for the first time in two weeks, with volumes picking up in an active session that by late afternoon showed more than 560,000 front-month contracts changing hands, more than the daily average.
Saudi Arabia and Kuwait, key members of the Organization of the Petroleum Exporting Countries, favor extending their production-limiting deal with non-member producers into the second half of the year.
An OPEC and non-OPEC technical committee on Friday recommended that the agreement be extended, even though the market is concerned about the pace of inventory decline.
Russia’s Energy Minister Alexander Novak declined to say whether Russia would adhere to an extension, saying global stocks were declining.
On May 25 OPEC and non-OPEC members will decide whether to extend cuts of almost 1.8 million barrels per day (bpd). Bjarne Schieldrop, chief commodities analyst at Nordic bank SEB, does not expect OPEC to roll over its cuts, saying it could potentially leave the cartel vulnerable to “more stimulus of the U.S. shale oil sector.”
U.S. production, already at its highest since August 2015, looks to keep rising, as U.S. drillers added rigs for a 14th consecutive week, Baker Hughes said on Friday.
U.S. crude futures were at $49.45 a barrel, down 2.5 per cent, or $1.26 as of 1:52 p.m. ET, on course for the biggest weekly decline since the week ended March 10. Brent futures were at $51.83 a barrel, down $1.16, or 2.2 per cent.
“Prices in the $40s are not as much an issue for U.S. producers that have hedged,” said Anthony Headrick, energy market analyst at CHS Hedging. “Conversely, it’s a concern for OPEC in terms of what they want that price to be.”
The Relative Strength Index (RSI), which measures momentum in asset pricing, fell below 30 for both oil benchmarks for the first time in almost a month, suggesting an oversold market.
On Sunday France holds the first round of its presidential election, where the race has been tight. Robert Yawger, director of energy futures at Mizuho Americas, said this uncertainty colors the oil market, even though France is not an oil producer.
“I would say it’s a situation where the spec community is not willing to ride that long position into the weekend and the French election,” he said.