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Oil up 2 per cent after early swings on dollar
[NEW YORK] Oil staged its first rally in three days on Friday, gaining 2 per cent, despite warnings of more oversupply as a result of Opec's decision to keep pumping crude without restraint.
A strong dollar, which often depresses commodity prices, failed to stem the late runup in Brent and US crude futures, despite limiting their gains in choppy early trade. "I guess some people wanted to take their oil shorts off before the weekend and put them on again next week," said Tariq Zahir, an oil bear at Tyche Capital Advisors in Laurel Hollow, New York. "Otherwise how do you have a runup on a day like this, when Opec promises to flood the market with more supply?" Crude's biggest producers and shippers in the Organization of the Petroleum Exporting Countries agreed at a meeting in Vienna to stick to a policy of unconstrained output for another six months.
Oil prices rose right after the decision, as market bulls tried to make up for losses since Wednesday. Brent and US crude fell nearly 3 per cent a day in those previous two sessions as traders locked in advance bets that OPEC would not cut supply.
But the dollar's surge on a stronger-than-expected US jobs report for May pushed crude down more than US$1 a barrel. Brent hit seven-week lows, descending into sharp volatility until the late rally. "The jobs report just blew away expectations and set the dollar on an unexpected run that tore into oil's gains," said Phil Flynn, analyst at the Price Futures Group in Chicago. "But at the same time, bulls were already hedged for the Opec decision not to cut output and ready for a relief rally after the losses of the past two days." Brent settled up US$1.28, or 2.1 per cent, at US$63.31 a barrel, after hitting the April 16 low of US$60.94. For the week, it fell 3.6 per cent.
US crude jumped US$1.13, or almost 2 per cent, to settle at US$59.13. It lost 2 per cent on the week.
The discount, or so-called "contango," between US crude's front-month and second-month widened to its largest in a week as oversupply worries mounted after the Opec decision. "To me, this is really what people should be watching as the wider the contango gets, the weaker price will be going forth," Mr Zahir said.
Data also showed US oil drillers boosted activity in four key shale basins this week despite an overall decline in oil rigs.