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 0.5% to
$59.93 a barrel on London's ICE Futures exchange. On the New York
Mercantile Exchange, light, sweet crude futures for delivery in
April fell 1% to $50.26 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."
Baker Hughes data late on Friday showed the closely watched U.S.
oil-rig count fell by 37 to 1019 in the latest week. The number of
rigs is down more than 35% since October which has fueled oil's
rally in recent weeks.
The decline, however, was less than half of that registered a
week ago. "A further slowing would only reinforce concerns that a
large production decline could take longer," Morgan Stanley
said.
The price of U.S. crude declined 4.6% last week, dropping more
than Brent crude, which fell 2.1%. Both benchmarks snapped a
three-week winning streak.
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--rose 0.6% to $1.6512 a gallon, while ICE gasoil
for March was little changed at $582 a metric ton.
Eric Yep contributed to this article.
Write to Georgi Kantchev at georgi.kantchev@wsj.com
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