Oil quoted in London and New York saw its biggest weekly fall in two years on Friday, the volatility on Wall Street and a US production at historical levels having broken the bullish momentum in the past five months.
A barrel of light sweet crude (WTI) for March delivery, the US benchmark for crude oil, lost $ 1.95 to close at $ 59.20 on the New York Mercantile Exchange, dropping by 9.55% over the week.
The WTI course returned to its levels at the end of December.
In London, Brent crude oil from the North Sea for delivery in April ended up at $ 62.79 on the Intercontinental Exchange (ICE), down $ 2.02 from the close on Thursday and 8, 59% on the week.
“The very high volatility on Wall Street seems to be the main factor behind the price drop,” said Bill O’Grady of Confluence Investment. In this context, “investors are making portfolio arbitrages and are disposing of the oil they have accumulated,” he added.
Wall Street also had a black week, with the Dow Jones losing more than 5% over the week. This decline in prices was exacerbated by the continued rise in US production, at historical levels.
A leading indicator of US production by Baker Hugues Friday reported a jump of 26 units on the number of active oil wells in the United States. On Wednesday, the US Department of Energy (DoE), had already unveiled an increase in daily US production above 10 million barrels during the week ending on February 2.
“The fact that (US) production today is 10 million barrels a day and the expectation that the United States will become the largest producer of crude (in the world) by the end of the year has prompted many market players (…) to take that into account,” commented an analyst at Commerzbank.
This increase in production could severely dampen the efforts of the Organization of the Petroleum Exporting Countries (OPEC) and its partners, which have been bound by a production-limiting agreement since early 2017 to rebalance the global market and maintain high prices. This agreement is in effect until the end of 2018.
According to Olivier Jakob, an analyst at Petromatrix, the WTI courses can not in this context exceed 60 dollars without an seeing an increase in American production, or plunge under 40 dollars without seeing these same producers close shop.
The fear of rising US production is, however, unjustified, according to Phil Flynn of Price Futures Group, because “if global demand growth continues at the current pace, then we will need this additional resource to meet this demand,” he asserted.