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Oil drops 1% as economic outlook weakens, US supply surges

Oil prices fell about 1 per cent on Friday after disappointing US job growth revived concerns about a slowing global economy and weaker demand for oil.

[NEW YORK] Oil prices fell about 1 per cent on Friday after disappointing US job growth revived concerns about a slowing global economy and weaker demand for oil.

With surging US oil supply also unsettling markets, Brent crude futures fell 56 cents, 0.8 per cent, to settle at US$65.74 a barrel. The international benchmark gained 1 per cent for the week.

US West Texas Intermediate (WTI) crude futures fell 59 cents, or 1 per cent, to settle at US$56.07 a barrel. WTI rose 0.5 per cent for the week.

US job growth almost stalled in February, with the economy creating only 20,000 jobs amid a contraction in payrolls in construction and several other sectors. The report dragged down US stock markets, along with oil futures.

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Financial markets also took a hit after comments on Thursday from European Central Bank president Mario Draghi, saying the European economy was in "a period of continued weakness."

"If we see equity markets continue to sink, it will eventually drag energy prices lower with it," Brian LaRose, a technical analyst at United-ICAP.

The European and US economic weakness comes as growth in Asia is also slowing.

China's dollar-denominated February exports fell 21 per cent from a year earlier, representing the biggest drop in three years and far worse than analysts had expected, while imports dropped 5.2 per cent.

"We've witnessed this week a rekindling of worries about demand growth," said Gene McGillian, vice president of market research at Tradition Energy in Stamford, Connecticut.

So far oil demand has held up, especially in China, where imports of crude remain above 10 million barrels per day (bpd). Yet a slowdown in economic growth could eventually dent fuel consumption and pressure prices.

On the supply side, oil has received support this year from output cuts led by the Organization of the Petroleum Exporting Countries (Opec). Saudi Arabia's crude oil production in February fell to 10.136 million barrels per day (bpd), a Saudi industry source told Reuters.

US sanctions against the oil industries of Opec members Iran and Venezuela have also supported futures.

But the United States is giving individuals and entities more time to wind down certain financial contracts or other agreements related to Venezuela's state-owned oil company, the US Treasury Department's Office of Foreign Assets Control (Ofac) said.

Meanwhile, US crude production has increased by more than 2 million bpd since early 2018 to 12.1 million bpd, making America the world's biggest producer.

Investment bank Jefferies said US output growth was largely being fueled by onshore shale production, which had recently benefited from investments by Exxon Mobil and Chevron.

However, US energy firms this week cut the number of oil rigs operating for a third week in a row to the lowest level in 10 months, General Electric Co's Baker Hughes energy services firm said on Friday.