Oil Down For The Week Over Demand Fears, Cynicism For OPEC Cut Extensions

A U.S. rig count increase added to Friday's gloom: File Image/Pixabay

Skittish traders on Friday continued to worry about low demand and high supply despite the Organization of the Petroleum Exporting Countries (OPEC) earlier delaying a planned output increase by three months;  and this caused another daily drop in oil as well as contributed to weekly losses.

Brent settled down 97 cents at $71.12 per barrel, while West Texas Intermediate settled down $1.10 at $67.20; for the week, Brent shed over 2.5 percent, while WTI lost 1.2 percent.

The OPEC move itself, which will unwind 2.2 million barrels per day (bpd) of cuts starting next April and increase monthly by 138,000 bpd, lasting 18 months until September 2026, continued to be greeted with cynicism.

"They're just waiting for better pricing and once they get that, they're going to start jumping in again," said Bob Yawger, director of energy futures at Mizuho.

HSBC Global Research analysts added, "While OPEC+'s decision to hold off strengthens fundamentals in the near term, it could be seen as an implicit admission that demand is sluggish."

For his part, Abdulaziz bin Salman, energy minister for Saudi Arabia, told media that OPEC had "not necessarily" lost confidence in global crude demand or in recoveries in China, but he admitted that "what is not helpful was the fact that some [OPEC] countries were not attending to their commitments properly."

He said the cartel had to undertake a "reality check" and reconcile supply-demand signals with market sentiment and attend to "the fundamentals, yet put together something that mitigate these negative sentiments within, of course, the contours of what OPEC+ can do."

It didn't help the negative mood on Friday that Baker Hughes reported an increase of seven new rigs in the U.S. for the past week for a total of 589; it was the first time in eight weeks that American energy firms added oil and natural gas rigs.

Meanwhile, Bloomberg pointed out that both WTI and Brent met resistance at their short-term moving averages, "prompting algorithmic traders known as CTAs to enter the market and extend losses on Friday."

Daniel Ghali, a commodity strategist at TD Securities, said in a note, "CTAs are selling Brent crude in response to deteriorating trend signals, which should further weigh on crude prices," and he added that he expects sizeable selling activity for oil in the coming week, even if prices remain relatively stable.