Since then, oil prices have rebounded but stockpiles remain high and production levels have not been cut.
Brent crude on London’s ICE Futures exchange LCON7, +2.25% is down almost 6% for the week.
Hedge funds cut bullish bets on US crude for the second straight week, data showed on Friday, as the price of oil fell on rising output in the United States, Canada and Libya as well as weak compliance on a deal between OPEC and other producing countries to cut output. Meanwhile, shale drillers are pressing ahead with their longest expansion since 2011. “I often worry when there are large outlier moves in markets, and this oil move is looking like one”, Michael Block, chief market strategist at Rhino Trading, wrote in report to clients.
“I think now this election is no longer an issue and the market is already starting to focus on new issues: inflation, the (euro zone) economy, and the US data”, said DZ Bank strategist Daniel Lenz.
Away from the oil market, the decline in gold prices was also stemmed, after the US Federal Reserve’s hawkish stance on interest rates sent the yellow metal tumbling below $1,230 an ounce in Thursday’s session. The result has been 11 weeks of expansion in USA production in the longest run of gains since 2012.
For such companies, multiple signs of a trend change were clear this week: a nose-dive in Chinese iron ore futures, big losses in gold and copper prices and persistently high oil inventories that spooked crude oil traders.
Prices began to fall on Wednesday after data showed USA stockpiles were higher than traders expected, appearing to validate concerns that US shale production growth is keeping the market in a perpetual state of oversupply. The U.S. benchmark’s 14-day relative strength index fell below 30 for a second day, signaling the commodity is oversold.
Prices are now below $50 for both global benchmark Brent (Intercontinental Exchange Europe: @LCO.1) and US crude (New York Mercantile Exchange: @CL.1) less than three weeks before OPEC meets to weigh extending the cuts for another six months.
Crude prices recovered 2 percent Friday, but remained below $50 as investors took a short-term buying position to benefit from Thursday’s slump. Germany’s DAX was down 0.1 percent at 12,633 and Britain’s FTSE 100 was up nearly 0.1 percent at 7,249. West Texas Intermediate crude broke through its 200-day moving average last week after a battle had raged between bulls and bears.
Emerging markets were also caught in the commodities sell-off.
CIMB economist Song Seng Wun said weak oil prices could hamper a recovery in Singapore’s offshore marine sector.
While OPEC is likely to prolong curbs for a further six months, American shale supply remains a concern, according to Nigeria’s oil minister.
The explanations go beyond the rise of USA shale oil, experts said. The war could jeopardize the possibility the OPEC-Russia deal would be extended into the second half of the year.
And while actual production figures from OPEC members are lower, what’s showing up on the market paints a different picture. However, under current OPEC and Non-OPEC production accord, a great deal of understanding and awareness led to record high production discipline amongst all conventional oil producers.
The dollar and USA government bond yields had both been nudged lower by the commodity market worries.