By Georgi Kantchev
LONDON--Oil prices started the week in the red with Brent
trading below the $60 a barrel mark as market participants turned
their focus back on the global oversupply of crude.
The expanding strike at U.S. refineries and the resumption of
operations at Libya's largest oil field fueled the bearish
sentiment.
Futures have been rebounding sharply in recent weeks from their
mid-January lows on the back of slower drilling activity in the
U.S. But data on Friday showed that the decline in the number of
drilling rigs in the U.S. was less than half of that registered a
week ago.
Brent crude for April delivery recently traded down 2% to around
$59 a barrel on London's ICE Futures exchange. On the New York
Mercantile Exchange, light, sweet crude futures for delivery in
April fell 2.9% to $49.32 a barrel.
"U.S. crude stocks are elevated and set to build through May as
challenges continue to mount," Morgan Stanley said in a weekly
report. "Volatility should be the new normal, but price upside is
likely limited from here."
The strong dollar also weighed on crude prices on Monday. Oil, a
dollar-denominated commodity, becomes less attractive for holders
of foreign currencies as the greenback appreciates. The Wall Street
Journal Dollar Index which tracks the dollar against a basket of
other major currencies rose 0.5% on Monday.
"If we are to believe that the dollar will show continued
strength in the future in its own right, this may mitigate a price
recovery," Barclays said in a note.
The recovery so far has been driven by a more than 35% decline
in the number of oil drilling rigs in the U.S., which investors see
as a sign that a decline in production will soon follow. But fall
in the rig count last week, down by 37 to 1019, was less than half
of that registered a week ago, according to Baker Hughes data.
"A further slowing would only reinforce concerns that a large
production decline could take longer," Morgan Stanley said.
News over the weekend further reinforced the bearish
sentiment.
The largest U.S. oil worker's strike since the 1980s expanded,
with union workers walking out of three more refineries, bringing
the total number to 12 refineries that account for 19% of U.S.
refining capacity. That is threatening three-fifths of crude oil
demand in the East of the U.S., according to the Schork report.
Meanwhile, in Libya, the country's largest oil field at Sarir
resumed operations on Sunday, after a pipeline was blown up about a
week ago by unknown militants, and the key oil export terminal at
Zueitina in eastern Libya also restarted operations.
According to analysts at ANZ Research, the strong performance in
oil futures over the past four weeks hasn't been associated with a
shift in the fundamentals. "While the market has been focused on
falling exploration and capital spending, strong supply growth is
still emerging. This can't be ignored forever," ANZ Research
said.
It expects prices of U.S. crude to head back below $50 a barrel
in the coming weeks, with a target of $43 a barrel over the next
2-3 months.
Nymex reformulated gasoline blendstock for March--the benchmark
gasoline contract--fell 0.6% to $1.6305 a gallon, while ICE gasoil
for March changed hands at $575.25 a metric ton, down $6.25 from
Friday's settlement.
Eric Yep contributed to this article.
Write to Georgi Kantchev at georgi.kantchev@wsj.com
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