Oil fell the most since November last year with a stronger US dollar and concerns surrounding inflation weighing on crude’s best start to the year on record.
West Texas Intermediate for March delivery on Friday declined 3.2 percent to US$61.50 a barrel, with a rising US dollar reducing the appeal of commodities priced in the currency.
However, the US crude benchmark still managed to post a nearly 18 percent gain this month and a weekly increase of 3.81 percent, as inventories worldwide tighten and pockets of demand return. Domestic crude production dropped for the first time in four years last year, according to the US government.
Brent crude for April delivery dropped 1.12 percent to US$64.42 a barrel, increasing 2.4 percent from a week earlier.
“Prices have a little bit more risk to the downside from the recent run that we’ve seen,” said Tariq Zahir, managing member of the global macro program at Tyche Capital Advisors LLC. “To continue going higher from here, demand has to come back pretty substantially.”
Crude prices have notched the largest year-to-date gain than in any year prior for the same time period, in part due to OPEC+ production curbs helping to deplete global stockpiles.
The unprecedented cold blast that recently halted millions of barrels of US output has also resulted in oil markets being about 100,000 barrels a day tighter than previously thought, JPMorgan Chase & Co has said.
Supply scarcity might also worsen in the coming months as North Sea fields undergo major maintenance.
The OPEC and its allies are to meet next week to decide on output levels. While Russia has signaled it favors a further easing of production cuts, the country’s oil output dipped below its OPEC+ target this month, meaning it failed to take full advantage of the more generous quota it was afforded after last month’s OPEC+ meeting.
“We all know the OPEC return to production is looming over the market pretty strongly,” said Gary Cunningham, director at Stamford, Connecticut-based Tradition Energy.
Continued declines in global supplies wold “depend on how much production OPEC brings back and whether or not the sanctions on Iran are lifted,” Cunningham said.
Soaring bond yields on Thursday were the latest sign that accelerating inflation could trigger a pullback in monetary policy support that has helped fuel gains in risky assets during the COVID-19 pandemic. While global bonds have since stabilized, a less accommodative approach to monetary policy could have ripple effects across commodity markets.
“Crude oil was in super overbought territory,” and due for a pullback, said Bob Yawger, head of the futures division at Mizuho Securities Co.
Plus, investors are “still anxious about rates ripping higher,” he added.
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