By Christian Berthelsen
U.S. oil prices fell Friday, snapping a five-session winning
streak as concerns about fighting in the Middle East faded,
negotiators appeared optimistic about a nuclear agreement with
Iran, and a measure of U.S. drilling activity underwhelmed the
market.
U.S. crude oil for May delivery fell $2.56, or 5%, to settle at
$48.87 on the New York Mercantile Exchange, giving back its gains
from Thursday when Saudi Arabian bombing runs against Shiite rebels
in Yemen had pushed prices higher. In electronic trading, the Nymex
contract extended its losses, falling to $48.28 a barrel. Brent
crude, the global benchmark, ended down $2.78, or 4.7%, at $56.41 a
barrel on the ICE Futures Europe exchange.
The U.S. contract fell just shy of setting its best weekly gain
in more than four years, as prices climbed this past week with the
dollar cooling from recent highs--a factor that prompts some
investors to dive into commodity markets--and as Middle East
tensions raised concerns about potential supply interruptions.
Still, oil posted its best weekly gain since early February,
rising 4.9% on the week. The Nymex contract has rallied despite
rising supplies, with the U.S. Energy Information Administration
reporting this past week that U.S. stockpiles rose to another
all-time record high.
Thursday's 4.5% gain, the biggest in six weeks, was fueled by an
escalation of a conflict in Yemen. Saudi Arabia launched airstrikes
on Shiite Houthi rebels threatening to overtake the U.S.-backed
government of President Abed Rabbo Mansour Hadi. Saudi and United
Arab Emirates continued airstrikes on Friday.
Yemen isn't a major oil power, producing only 133,000 barrels a
day according to the EIA, but the conflict sparked worries that
fighting could spill over to other areas and potentially block the
Bab el-Mandeb Strait--a key oil-transit point between the Persian
Gulf and the Suez Canal.
"We haven't had a geopolitical fear premium put into the market
in quite some time," said Tariq Zahir, managing member of Tyche
Capital Advisors, a firm that guides and oversees client
investments in commodity markets.
Many analysts said Thursday's rally was an overreaction to the
tensions. A bigger threat, pressuring oil prices lower, was the
apparent progress being made on talks between the U.S. and Iran on
an agreement that would limit the Middle Eastern nation's nuclear
ambitions while lifting economic sanctions, including an oil-export
embargo, that have punished the country. Traders and analysts cited
reports that U.S. Secretary of State John Kerry resumed meetings
with Iranian negotiators in Switzerland on Thursday and voiced
optimism that agreement on a preliminary framework could be reached
ahead of a March 31 deadline.
"For the weekend, we want to be positioned for the possibility
of the Strait of Hormuz opening up rather than for the possibility
of the Bab el-Mandeb shutting down," research firm Petromatrix said
in a note.
The key questions for the market then would be how fast the
sanctions are lifted and how soon--and how much--Iranian oil might
be returning to a global market already swimming in excess
supplies. The global glut has prompted a months-long selloff that
brought oil prices down more than 50% from their peak last
June.
Meanwhile, a weekly count of U.S. drilling activity by oilfield
services company Baker Hughes disappointed bullish investors who
were hoping for a larger decline. The company reported a fall of
just 12 rigs this week, the smallest decline since the number of
rigs working in the U.S. began falling in December. Though the
number of drilling rigs has fallen by more than 40% from its peak,
domestic production has continued to rise.
"The rig count was less than inspiring," said Phil Flynn,
account executive at brokerage Price Futures Group in Chicago.
In refined products, the front-month April gasoline futures lost
8.37 cents, or 4.4%, to $1.7980 a gallon on the Nymex. Diesel
futures fell 6.01 cents, or 3.4%, to $1.7275 a gallon.
Write to Christian Berthelsen at
christian.berthelsen@wsj.com
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