Crude Oil Prices Fall as Bond Shakeout Spills Over

By Geoffrey Smith

Investing.com -- Crude oil prices fell on Friday against the backdrop of fresh volatility in risk assets worldwide that led bulls to draw in their horns ahead of a crucial meeting of major producers next week.

By 11:20 AM ET (1620 GMT), U.S. crude futures were own 1.7% at $62.47 a barrel, while Brent crude, the international benchmark, was down 1.3% at $65.26 a barrel.

U.S. gasoline RBOB futures were down 0.5% at $1.9655 a gallon.

All three contracts were set for a weekly gain, despite the sharp sell-off in U.S. bonds on Thursday on fears of a revival in inflation. That sent the dollar higher, damping a surge in prices that has been stoked by expectations for a long period of loose U.S. monetary policy.

That backdrop, coupled with strengthening hopes of a broad global recovery in demand this year, have turned investors markedly more optimistic for oil prices this year.

A Reuters survey published on Friday forecast that Brent crude would average $59.07 per barrel in 2021, up from last month’s $54.47 forecast. This is the biggest month-on-month upward revision for the yearly forecast in Reuters polls going back until at least 2016, the agency said.

The biggest risk to that scenario, in the short-term, appears to be that major producers will use highest prices to relax their pact on output restraint, which is currently keeping some 7 million barrels a day of oil off world markets.

The Organization of Petroleum Exporting Countries is due to meet with allies led by Russia next Thursday to set output quotas for April. The previous meeting had ended in a face-saving compromise which allowed Russia and Kazakhstan to raise their output, while Saudi Arabia offset the net increase in world supply with a temporary 1 million barrel a day cut of its own.

“To stop and potentially reverse slightly the meteoric rise in oil, I'd expect a multi-million barrel increase may be needed to push oil back to $50,” said GasBuddy analyst Patrick de Haan. “With recovering demand, feels like the market probably could use 2+ (million b/d) increase.

“Anything under 1 is too low and risks oil breakout,” he added.

Demand may also soften in the near term as Chinese refiners slow their purchases due to higher spot prices and full storage tanks. The country’s oil imports are at their highest in over a year, and many independent refineries are scheduled to shut for maintenance.

Later in the day, Baker Hughes will publish its latest weekly rig count, while the Commodity Futures Trading Commission will release its latest update on net speculative positioning.

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