Oil drops on dollar strength and OPEC+ supply expectations
Shafaq News/ Oil prices fell on Friday as bond price rout led to gains in the U.S. dollar while crude supply is expected to rise in response to prices climbing above pre-pandemic levels.
According to Reuters, Brent crude futures for April, which expire on Friday, fell 99 cents, or 1.4%, to $65.89 a barrel by 1203 GMT. The more actively traded May contract slipped by $1.19 to $64.92.
U.S. West Texas Intermediate (WTI) crude futures dropped $1.27, or 2%, to $62.26.
A sell-off in bond markets lifted the U.S. dollar, making dollar-priced oil more expensive for holders of other currencies.
Friday’s gains also reflect profit-taking after both Brent and WTI headed towards monthly gains of about 20% on supply disruptions in the United States and optimism over demand recovery on the back of COVID-19 vaccination programs.
Investors are betting that next week’s meeting of the Organization of the Petroleum Exporting Countries (OPEC) and allies, a group known as OPEC+, will result in more supply returning to the market.
“Oil prices have gone too far and too fast. Brent is above pre-pandemic levels even though global oil demand is still playing catch-up,” PVM analysts said.
For all the talk of tightening fundamentals, the demand side of the market is nowhere near warranting current oil price levels, they added.
U.S. crude prices also face pressure from the loss of refinery demand after several Gulf Coast facilities were shuttered during the winter storm last week.
Refining capacity of about 4 million barrels per day (bpd) is still shut and it could take until March 5 for all shut capacity to resume, though there is risk of delays, analysts at J.P. Morgan said in a note this week.