Oil declined the most in a week, with rising US crude stockpiles seen as an obstacle facing a market that is still recovering from a pandemic-induced demand slump.
Futures fell 1.6 percent to the lowest level in nearly two weeks in New York on Friday.
A US government report showed that domestic crude inventories increased for the first time since last month, rising more than 4 million barrels last week.
Photo: Reuters
However, the data also showed that refiners processed the most crude since March last year, an encouraging sign.
“This is clearly a bearish number short-term,” said Quinn Kiley, a portfolio manager at Tortoise, a firm that manages about US$8 billion in energy-related assets.
However, the data “suggest demand has recovered a lot more than maybe people would have noticed,” Kiley said.
A stronger US dollar on Friday also reduced the appeal of commodities priced in the currency.
Following crude’s strong start to the new year, prices have struggled to break out to new highs this month with restrictions in place to curb the spread of COVID-19.
Parts of Hong Kong have locked down and the British prime minister has signaled that restrictions might last for months, while the governor of New York said the state is on the verge of running out of COVID-19 vaccines.
“The oil market has thus far managed to shrug off the ongoing and strict lock-down conditions that persist throughout much of Europe,” Ryan Fitzmaurice, commodities strategist at Rabobank NV, wrote in a note. “But the risk of renewed lockdowns in Asia will be extremely hard for the oil market to ignore.”
Crude’s market structure has remained firm this week, with key timespreads for both West Texas Intermediate (WTI) and Brent crude trading in a structure indicating supply tightness.
The nearest contract for WTI futures is trading at a premium to the following month, with the Energy Information Administration report showing stockpiles at the nation’s largest storage hub in Cushing, Oklahoma, fell the most since May last year.
Brent’s nearest timespread is also trading in a so-called backwardation structure.
WTI for March delivery on Friday fell US$0.86 to US$52.27 a barrel, down 2.4 percent for the week.
Brent crude oil for March delivery fell US$0.69 to US$55.41 a barrel, down 1.8 percent for the week.
Trafigura Group chief executive officer Jeremy Weir told Bloomberg Television that oil prices would rise on the back of OPEC production cuts and a demand boost from a rebounding global economy.
Meanwhile, Goldman Sachs Group Inc said in a note that the Biden administration’s initial steps, including a focus on fiscal spending and a likely delay in lifting sanctions on Iran, would be bullish for oil prices.
Refineries processed the most crude last week since March last year, when fuel demand weakened early on in the pandemic.
Processing a barrel of crude has become more profitable in the past few months, with the combined refining margin for gasoline and diesel above US$13 a barrel after struggling to hold above US$10 a barrel during parts of the summer and fall of last year.
Additional reporting by AP, with staff writer
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