By Heesu Lee and Alex Longley
Futures fell as much as 1.8% in New York on Friday from Wednesday’s close as payrolls climbed by 224,000 in June. Anxiety over oil demand also returned following sluggish manufacturing data from the U.S. to China earlier this week. That’s overshadowing OPEC and its allies prolonging supply curbs and the seizure of a tanker carrying Iranian crude to Syria by British special forces on Thursday.
Oil slumped on Tuesday in its worst decline following a meeting by the Organization of Petroleum Exporting Countries in four years. While it is struggling to boost prices, the cartel’s production curbs are also leaving the door open for U.S. shale producers to grab more market share, according to Goldman Sachs Group Inc. American crude output resumed gains last week after dropping from a record high since the start of June.
“If the state of the economy does not improve, demand alone is not likely to be able to slice potentially growing inventories,” Michael Poulsen, an analyst at Global Risk Management A/S, wrote in a report. “The Middle East tensions are also potentially bullish for oil prices and any new development in the area could spur fears of oil disruptions.”
West Texas Intermediate oil for August delivery dropped 37 cents, or 0.7%, from Wednesday’s close to $56.65 a barrel on the New York Mercantile Exchange at 9:25 a.m. local time. There was no settlement Thursday due to a holiday in the U.S. and all transactions will be booked Friday. Prices are down 2.5% this week.
Brent for September rose 45 cents to $63.75 a barrel on the ICE Futures Europe Exchange. Futures are down 4.2% this week. The global benchmark crude traded at a $6.61 premium to WTI for the same month.
Prices are also losing support from a tight physical crude market, which has pushed up global refining margins in the last few days after a lackluster May and June. Typically, higher processing margins are bullish for oil, yet some of the current rally is likely due to the halting of a 335,000 barrel-a-day refinery on the U.S. East Coast, which is propping up fuel prices rather than crude.
U.S. hiring rebounded in June, an indicator that may ease calls for a Federal Reserve interest-rate cut. American stock futures fell and the dollar advanced. A stronger greenback reduces the attraction of commodities priced in the currency, including oil.
Still, there have been persistent concerns about the strength of the global economy. Bank of England Governor Mark Carney this week warned of dangers from rising protectionism around the world and said there could be a “widespread slowdown.”
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