Oil had its worst week in a month as compliance with Opec’s deal falters and the outlook for demand worsens.
West Texas Intermediate for September delivery rose 23 cents to settle at $48.82 a barrel on the New York Mercantile Exchange. The US benchmark hovered near its 100-day moving average during the session, a sign its recent rally may be losing strength.
Brent for October settlement rose 20 cents to end the session at $52.10 a barrel on the London-based ICE Futures Europe exchange. The global benchmark traded at a premium of $3.13 to October WTI.
The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, fell as much as 0.5 per cent. A weaker greenback boosts the appeal of commodities as an investment.
While a weaker dollar helped push prices in New York 0.5 per cent higher on Friday, erasing earlier losses, futures closed 1.5 per cent down for the week. The International Energy Agency reduced demand estimates for Opec crude this year and 2018, and said there are doubts about the group’s commitment to cutting production. Even a pledge by Saudi Arabia and Iraq to strengthen their commitment to the curbs isn’t helping.
“With the latest rhetoric from the IEA, it looks like the balancing cycle is further protracted, which is not great for the market,” Michael Loewen, a strategist at Scotiabank in Toronto, said by telephone. Investors need to see either Opec production really decline or compliance to the output-reduction deal improve to believe rebalancing is happening, he said.
Oil just hasn’t been able to stick to the $50 mark in New York even though US crude inventories are at their lowest since October, in part because recent declines are seen mostly as the result of summer demand that’s soon to fade. Opec’s rate of compliance with output cuts slid to 75 per cent in July, the lowest since the accord started in January, the IEA said. Opec said its output is increasing on supplies from Libya, which is exempt from the deal.
If Opec’s compliance to the deal continues to slow, “the rebalancing is going to take a longer time,” Mark Watkins, a Park City, Utah-based regional investment manager at US Bank Wealth Management, which oversees $142 billion in assets, said by telephone.
Meanwhile, in the US the number of rigs drilling for crude rose to 768, the highest level since April 2015, as production is set to reach nearly 10 million barrels next year. Amid all the doubt that supply and demand are coming to balance, futures have been stuck in a tight range of about $2.50 this month.
The IEA on Friday lowered projections for the amount of crude required from Opec this year and next by about 400,000 barrels a day. About 32.6 million barrels a day will be needed from the group this year, less than the 32.84 million it pumped in July.
Earlier in the week, an Energy Information Administration report showed US crude inventories dropped for a sixth straight week, yet gasoline stockpiles unexpectedly rose by the most since January.
This week’s inventory report “had a little bit of a bearish tilt to it. We usually don’t see gasoline builds at this time of year,” Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors LLC, said by telephone. “We’re just stuck in this range here. $50 is definitely a brick wall.”