Oil dives below $50 as confidence in Opec wavers

by: Anjli Raval, Oil and Gas Correspondent

Oil was set for the biggest weekly drop in a month as market confidence in Opec’s ability to overpower a resurgent US shale industry wavered.

US benchmark West Texas Intermediate fell below $50 a barrel on Friday — down $1.32 to $49.39 — by 6.45pm in London. The global Brent marker dropped $1.24 to $51.75 a barrel.

Both benchmarks fell by more than 7 per cent this week, marking the biggest falls since early March.

As supply curbs by Opec producers and those outside of the cartel took effect in January — sending prices higher in 2017 — US shale production has rebounded, locking the oil market into the middle of two competing forces.

Data from US drilling company Baker Hughes on Friday showed that the number of rigs drilling for oil in the US rose for a 14th consecutive week. Drillers added five rigs in the week to April 21, bringing the total count to 688 — the most since April 2015.

Analysts at Goldman Sachs said the price falls this week, however, were technical and not based on supply and demand fundamentals.

But concerns are mounting that a ramp up in US shale production will undermine a push by Opec and other producers such as Russia to reduce excess stockpiles and bring to a close the worst price crash in a generation.

One Wall Street trader said: “There are lots of things at play. US production is surging, there are concerns about demand in Asia, hedge funds are reducing their bets on a higher oil price. It’s all coinciding and putting pressure on prices.”

The Baker Hughes figures come after a midweek sell-off, triggered by a surprise build in US gasoline stocks, prompting some concern from analysts about the broader demand picture for crude.

Even Opec ministers failed at their attempts to reverse the drop. Saudi Arabia’s energy minister Khalid Al Falih said on Thursday that momentum was building for an extension of supply cut deal among global producers — the clearest sign yet from Opec’s de facto leader the kingdom is pushing for a continuation of the pact.

“The latest attempt to talk up the market was ultimately in vain,” said Stephen Brennock at London-based broker PVM.

Other analysts have called for patience and say supply and demand should even out later this year.

Citigroup said this week that they still believed the US oil market was “turning a corner” and they expect global and US inventories to draw down throughout 2017, even with a US shale rebound.