2-9-18 4:58 PM EST | Email Article
By Neanda Salvaterra 

Oil prices slid below $60 a barrel, posting their biggest weekly slump in more than two years, as sharp swings in other financial markets spilled over and investors faced an onslaught of U.S. production.

U.S. crude futures fell 9.55% this week. On Friday alone, prices fell by $1.95, or 3.19%, to $59.20 a barrel on the New York Mercantile Exchange. Brent crude, the global benchmark, fell by $2.02, or 3.12%, to $62.79 a barrel on Friday -- the biggest one-day drop since July.

Earlier this year, it had seemed that nothing could knock oil off its upward trajectory. Surging economic growth around the world has created more appetite for oil and fuel, helping propel oil prices to their highest level in more than three years in January. U.S. prices rose to more than $66 a barrel, a 55% rally from a low in June. Meanwhile, Brent topped $70.50 last month.

But after six straight days of declines, oil prices are now back to where they were in December.

Volatility in equity markets has weighed on oil prices this week. U.S. stocks rebounded toward the end of the day Friday, but the Dow Jones Industrial Average still posted its biggest weekly drop since 2008.

"There's a sense of nervousness right now. People are starting to look at whether there will be some kind of contagion -- what's out there?" said Ric Navy, senior vice president for energy futures at R.J. O'Brien & Associates LLC.

One of the biggest shifts in the oil market has been a string of data pointing to an unrelenting rise in U.S. oil production -- something investors have largely looked past earlier this year.

Another 26 oil rigs went to work this week, according to Baker Hughes, a GE Company -- the biggest weekly jump since January, 2017.

This week, the U.S. Energy Information Administration raised its forecast for production this year to 10.6 million barrels a day. That is up about 300,000 barrels a day from what it expected just a month ago and would best a 1970 record by about 1 million barrels a day. The agency said output already rose to 10.25 million barrels a day last week -- the highest ever.

Investors had amassed record net bullish positions in oil in recent weeks, betting that cutbacks by the Organization of the Petroleum Exporting Countries, escalating geopolitical tensions, and growing economies would do away once and for all with a glut of oil that weighed on the market for more than three years.

But they have been retreating from those bets, according to the most recent data from the Commodity Futures Trading Commission.

Some investors said they are watching to see whether the stock market's tumble affects how much consumers are spending, and what that means for oil demand.

"If we see some consumer spending pattern change, that could have a downside consequence, but right now we're not too worried," said Darwei Kung, portfolio manager of the Deutsche Enhanced Commodity Strategy Fund. "The underlying economic numbers are very robust."

Energy stocks in the S&P 500 were the only group out of 11 in the benchmark equity gauge on Friday to retreat, declining 0.4%. The U.S. equity market staged a late-afternoon Friday rebound after a volatile week.

Last year, oil investors where lulled into complacency that "this time it is different" and American producers won't ramp up output, said Olivier Jakob, managing director of Petromatrix. But that narrative proved to be false.

"U.S. producers have reacted in style to the rising oil prices and have accelerated the pace of growth of U.S. crude oil production," Mr. Jakob said.

--Neanda Salvaterra contributed to this article.

Write to Neanda Salvaterra at neanda.salvaterra@wsj.com

 

(END) Dow Jones Newswires

February 09, 2018 16:58 ET (21:58 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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