By Christian Berthelsen
The U.S. benchmark oil contract slipped on Friday, but remained
within striking distance of its biggest weekly gain in four years,
as concerns about fighting in the Middle East faded.
Crude oil for May delivery fell $1.41, or 2.7% to $50.02 a
barrel on the New York Mercantile Exchange, on track to post the
largest weekly gain since Feb. 25, 2011. Oil prices have been
climbing this past week as the dollar has cooled from its recent
highs, a factor that has prompted some investors to dive back into
commodities, and as geopolitical strife in the Middle East raised
concerns about potential supply interruptions.
Brent crude, the global benchmark, was down $1.44, or 2.4%, at
$57.75 a barrel on the ICE Futures Europe exchange.
Before Friday, U.S. oil futures have risen five sessions in a
row, with prices at their highest levels since early March. Oil has
rallied despite rising supplies, with the U.S. Energy Information
Administration reporting this past week that U.S. stockpiles rose
to another all-time record high.
Thursday's gain, the biggest in six weeks, was fueled by an
escalation of the conflict in Yemen. Saudi Arabia launched
airstrikes on Shiite Houthi rebels threatening to overtake the
U.S.-backed government of President Abd-Rabbu Mansour al-Hadi. U.S.
oil futures soared 4.5% on Thursday. Saudi Arabia and United Arab
Emirates continued airstrikes on Friday.
Yemen isn't a major oil power, producing only 133,000 barrels a
day according to the EIA, but the conflict sparked worries that
fighting could spill over to other areas and potentially block the
Bab el-Mandeb Strait--a key oil-transit point between the Persian
Gulf and the Suez Canal.
"We haven't had a geopolitical fear premium put into the market
in quite some time," said Tariq Zahir, managing member of Tyche
Capital Advisors, a firm that guides and oversees client
investments in commodity markets.
Many analysts said Thursday's rally was an overreaction to the
heightened tensions. A bigger threat, pressuring oil prices lower,
was the apparent progress being made on talks between the U.S. and
Iran on an agreement that would limit the Middle Eastern nation's
nuclear ambitions while lifting economic sanctions, including an
oil-export embargo, that have punished the country. Traders and
analysts cited reports that U.S. Secretary of State John Kerry
resumed meetings with Iranian negotiators in Switzerland Thursday
and voiced optimism that an agreement on a preliminary framework
could be reached ahead of a March 31 deadline.
"For the weekend, we want to be positioned for the possibility
of the Strait of Hormuz opening up rather than for the possibility
of the Bab el-Mandeb shutting down," research firm Petromatrix said
in a note.
Reports of progress in the negotiations increased the odds that
a deal could be reached within days, analysts at Goldman Sachs
wrote in a research note released late Thursday night. The key
questions for the market then would be how fast the sanctions are
lifted and how soon--and how much--Iranian oil might be returning
to a global market already swimming in excess supplies.
In refined products, the front-month April gasoline futures fell
5.68 cents or 3% to $1.8249 a gallon on the Nymex. Diesel futures
fell 1.8 cents or 1% to $1.7696 a gallon.
Write to Christian Berthelsen at
christian.berthelsen@wsj.com
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