Oil prices log worst week since February as concerns over Middle East supply risks fade

By Myra P. Saefong and William Watts

OPEC+ may extend production cuts: report

Oil futures finished lower Friday - with easing concerns over potential supply disruptions in the Middle East, strong U.S. production and signs of slowing demand prompting prices to register their largest weekly percentage loss since early February.

Traders tied an early Friday rise in oil prices to a news report that some OPEC+ members would be willing to extend production cuts beyond the end of the second quarter.

Price moves

West Texas Intermediate crude for June delivery CL00 CL.1 CLM24 fell 84 cents, or 1.1%, to settle at $78.11 a barrel on the New York Mercantile Exchange, for a weekly fall of nearly 6.9%.July Brent crude BRN00 BRNN24, the global benchmark, declined by 71 cents, or nearly 0.9%, at $82.96 a barrel, leaving it down 6% for the week. Brent and WTI prices both marked their largest weekly percentage losses since the week ended Feb. 2, according to Dow Jones Market Data.June gasoline RBM24 lost 1.6% to $2.56 a gallon, ending down 6.9% for the week. June heating oil HOM24 ended nearly flat at $2.44 a gallon, falling 4.6% for the week. Natural gas for June delivery NGM24 settled at at $2.14 per million British thermal units, up 5.3% Friday for a weekly rise 11.4%.

Read: Natural-gas prices post their first monthly gain since October. Here's why.

Market drivers

The decline in oil prices "reflects in part the removal of war risk premium that was slowly priced in as the tensions in the Middle East intensified with Iran and Israel attacking each other directly," said Fawad Razaqzada, market analyst at City Index and FOREX.com.

But tensions have eased, and hopes for a ceasefire between Israel and Hamas have grown amid international pressure on Jerusalem, so oil prices have "basically given back all the gains made since early March," he said in market commentary.

A large jump in U.S. crude inventories reported earlier this week also helped put pressure on crude.

There's "concern about demand in the U.S. where commercial crude inventories have been building more than expected," with the rate at which refiners process crude to crude products having dropped noticeably, said Razaqzada.

Matthew Parry, head of long-term analysis at Energy Aspects, told MarketWatch that expectations of future Chinese refinery runs have been dampened, with Energy Aspects lowering its estimates for the second and third quarters of this year on reports of higher maintenance and compressed margins because of lackluster Chinese diesel demand.

He also said that U.S. oil production, as reported by the Energy Information Administration has also "surprised to the upside." February's month-on-month increase of about 600,000 barrels per day marked a "sharp bounce back from January's weather-induced slump."

News of a hefty weekly drop in the number of U.S. oil rigs failed to provide much, if any, support for oil prices Friday, even as the decline implied a potential slowdown in future production.

Baker Hughes (BKR) reported Friday that the number of active U.S. rigs drilling for oil was down 7 at 499 this week. The total active U.S. rig count, which includes those drilling for natural gas, fell by 8 to stand at 605.

Meanwhile, OPEC+ - made up of the Organization of the Petroleum Exporting Countries and its allies - hasn't started formal talks, but Reuters reported Thursday that three sources from OPEC+ producers said they would be willing to consider extending cuts due to end in June if demand doesn't pick up.

OPEC+ members are due to meet on June 1. Voluntary production cuts of 2.2 million barrels a day are due to expire at the end of the quarter.

-Myra P. Saefong -William Watts

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05-03-24 1530ET

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