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Late sell-off pushes U.S. crude back near $30, amid strong dollar rally

Published 02/05/2016, 02:26 PM
Updated 02/05/2016, 02:38 PM
Both Brent and WTI crude fell by more than 1% on Friday ending the week in the red

Both Brent and WTI crude fell by more than 1% on Friday ending the week in the red

Investing.com -- U.S. crude futures fell by more than 2% amid a recovering dollar, as a late sell-off pushed domestic oil prices back toward $30 a barrel.

On the New York Mercantile Exchange, WTI crude for March delivery traded between $30.80 and $32.42 a barrel, before settling at $30.88, down 0.84 or 2.66% on the day. In spite of a massive spike of 8% on Wednesday, WTI crude still ended the week down by nearly $3 a barrel. On the Intercontinental Exchange (ICE), brent crude for April delivery wavered between $33.81 and $35.12 a barrel, before closing at $34.02, down 0.44 or 1.28% on the session. Brent suffered less damage than their U.S. counterpart on the week, falling approximately 2.75% from its opening level on Monday.

Both the international and U.S. benchmarks of crude remain near 12-year lows from last month, when WTI traded at $26.19 on Jan. 20 and brent nearly dipped below $27. Over the last 18 months, crude futures have crashed more than 70% amid a massive supply glut worldwide.

Although Friday's session lacked the sudden, unpredictable fluctuations that have defined the oil trade since the start of the new year, investors anticipate that volatility will remain high in the near-term. Analysts from Jeffries said on Friday that investors should expect "elevated volatility" over the next week on "upward moves from short covering." Earlier this week, net short positions in WTI crude rose to a fresh 30-month high.

When the International Energy Agency (IEA) released its December oil market report this week, the Paris-based group said Non-OPEC oil supply slipped by 0.6 million barrels per day to 57.4 million on the month, lending support for sharp production declines this year. For 2016, the IEA expects Non-OPEC supply to fall dramatically by an average of 0.7 million bpd.

More troubling, may be the unexpected declines in demand growth by Non-OPEC members at the end of last year. During the fourth quarter, Non-OPEC demand growth decelerated to a one-year low of 1.0 million bpd, down from near five-year highs of 2.1 million bpd over the previous three months. Consumer demand evaporated in the final months of 2015, in the face of weak economic sentiment among major world powers such as Russia, China and Brazil.

Investors are cautiously optimistic that demand can remain steady this year, as global supply hovers near record-highs. Oil prices rallied this week after reports surfaced that OPEC could hold an emergency meeting later this month to discuss potential production cuts. The rebound, however, was short-lived, as a group of six OPEC members clamoring for the meeting reportedly have been unable to win support from Saudi Arabia, the world's largest exporter.

Markets in China will be closed for the majority of next week due to the Lunar New Year holiday. China is the world's largest consumer of oil behind the U.S.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, gained more than 0.60% to an intraday high of 97.29. Previously, the index had slumped over 3% this week as investors braced for a disappointing employment report.

Dollar-denominated commodities such as crude become more expensive for foreign purchasers when the dollar appreciates.

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