Oil slipped below $58 a barrel as a recent rally fizzled with the Covid-19 pandemic continuing to weigh on the demand outlook and as one technical indicator signaled prices may have climbed too far, too fast. Futures in New York fell for a second session on Friday after surging more than 12% for the longest run of gains in two years. The enduring outbreak continues to crimp fuel consumption from China to the U.S., with the International Energy Agency cutting its demand forecast for 2021 and describing the market as fragile. The U.S. government earlier this week also predicted the nation’s petroleum demand will likely need much more time to recover.

Despite the bearish sentiment, oil is still set to eke out a weekly gain and some are optimistic on the longer term outlook, including the IEA. The market is tightening, traders such as Trafigura Group see prices moving higher, and Citigroup Inc. is predicting Brent crude may hit $70 a barrel by year-end.

Oil slips after longest rally in two years

Oil’s rapid rebound from the depths of the Covid-19 pandemic has accelerated this year after Saudi Arabia pledged to deepen output cuts. Prompt timespreads have firmed in a bullish backwardation structure, helping to unwind bloated stockpiles held in onshore tanks and on ships that swelled during the outbreak.

While the recent eight-day rally pushed oil prices to the highest level in a year, it also sent crude’s 14-day Relative Strength Index firmly into overbought territory, signaling a correction was due. A stronger dollar also reduced the appeal of commodities like oil priced in the currency. “It was a long, uninterrupted rally that had to take a breather,” said Vandana Hari, founder of consultancy Vanda Insights. “The next leg up in prices may need reassurance that OPEC+ do not proceed to open the spigots from April.”
PRICES
  • West Texas Intermediate for March delivery slid 0.8% to $57.80 a barrel on the New York Mercantile Exchange at 7:38 a.m. London time after dropping 0.8% on Thursday.
    • Futures are up 1.7% this week.
  • Brent for April settlement lost 0.6% to $60.75 on the ICE Futures Europe exchange after closing 0.5% lower on Thursday.