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Oil in Broad Retreat, Hammered by Economy and Canada Supply

Friday, 31 May 2013 | 2:45 PM ET
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Oil prices on both sides of the Atlantic extended sharp losses on Friday after a key Canadian crude pipeline resumed service, underscoring ballooning supplies in a market with tepid demand and a weak economic outlook.

TransCanada Corp said its 590,000-barrels-per-day Keystone pipeline, which delivers Alberta crude to Illinois and benchmark U.S. supply point Cushing, Oklahoma, had restarted.



Brent crude futures dropped below $101 per barrel, trading nearly $2 lower to stand near $100. U.S. light, sweet crude shed more than $1.50 to trade near the day's lows below $92.


Oil Prices to Fall: Pro
Andrew Su, CEO of Compass Global Markets says OPEC producers can't ignore rising U.S. output for much longer and will have to reduce production soon.

U.S. consumer spending fell in April for the first time in almost a year, data showed. Euro zone figures released during the session showed unemployment in the 17-country bloc reached a new high last month.

"With Europe still in recession, the market continues to look like it wants to try to test $90 (for U.S. crude futures)," said Gene McGillian, an analyst with Tradition Energy in Stamford, Connecticut.

A stronger dollar also weighed on oil. The dollar index rose slightly, climbing from a near three-week low earlier this week on hopes U.S. monetary stimulus would continue.

A stronger U.S. currency makes dollar-denominated commodities more expensive for holders of other currencies.

The Organization of the Petroleum Exporting Countries on Friday kept its output target unchanged at 30 million barrels per day, as expected, given market prices are in line with top producer Saudi Arabia's preferred level of $100 a barrel.

Supplies of oil are more than ample. U.S. government data on Thursday showed crude stocks at a record high.

Traders and investors are waiting to see whether the U.S. Federal Reserve continues its monetary stimulus program, keeping interest rates low and supporting oil prices.

Even so, "bearish oil balances" will eventually become "too difficult to ignore" and will send prices lower, Jefferies Bache oil analysts said.

"In the meantime, some more choppy price action with a downward bias would appear to lie ahead."