By Barani Krishnan
Investing.com - Squeezing the supply of a commodity can make buyers pay more for it, but not necessarily want more of it. The oil market is learning that.
Crude oil prices settled down about 1% on Friday after the European Central Bank signaled more economic troubles in the region and U.S. jobs data showed labor market growth virtually grinding to a halt in February. Combined with a Chinese economy growing at its slowest pace in nearly 30 years and unable to end trade hostilities with the U.S. after multiple talks, the prospects for new oil demand were at best restrained.
New York-traded West Texas Intermediate crude settled down 59 cents, or 1%, at $56.07 per barrel after tumbling more than 2% earlier. The U.S. crude benchmark has struggled to establish clear direction since a slide of nearly 3% last Friday, ending the current week up by just 0.5%
Brent, the global oil benchmark, was down 53 cents, or 0.8%, at $66.10 per barrel by 2:40 PM ET (19:40 GMT). For the week, it rose 1%.
Since the start of March, the rally in oil has made little headway, a stark contrast to the gains of more than 20% in WTI and Brent through February that came from hefty production cuts by the OPEC+ alliance of 25 oil producing countries.
Platts reported on Friday that Saudi Arabia pumped 10.1 million barrels per day of crude in February in yet another sign that OPEC’s largest producer and de facto leader was cutting more than pledged under the OPEC+ production deal that began in January.
Friday's selloff was triggered by remarks from ECB President Mario Draghi, who said eurozone economies were in "a period of continued weakness and pervasive uncertainty."
U.S. jobs data for February showed the creation of only about 20,000 jobs versus market expectations for 181,000 new positions.
Chinese economic data, meanwhile, threw up conflicting statistics.
According to reports, dollar-denominated February exports in the world's second-largest economy fell 21% from a year earlier, representing the biggest drop in three years amid a drop of 5.2% in imports.
While oil demand in China has so far held up with crude imports staying above 10 million bpd, the slowdown in economic growth is likely to dent fuel consumption and pressure prices, reports show.
"The market remains heavily focused on macro events such as trade talks between the U.S. and China, since deteriorating ties could hurt global economic growth and have a knock-on effect on oil demand," New York-based Energy Intelligence said in its weekly newsletter.
"In fact, securing a trade deal is seen as critical to supporting investor confidence across asset classes this year," it added.
To counter OPEC cuts, U.S. oil production is reaching new highs, with output already above 12 million bpd and racing toward the next target of 13 million bpd, according to the U.S. Energy Information Administration.
Last, but not least, Norway's trillion-dollar sovereign wealth fund, the world's biggest, announced on Friday it will sell stakes in oil and gas explorers and producers, adding to the dour mood across the energy sector.