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Oil plunges 3.2%, settling at $59.20, posting worst weekly decline in two years

  • U.S. crude oil fell below $59 a barrel for the first time in 2018, on pace for the worst weekly drop in two years.
  • Rising production and a strong dollar have heaped pressure on oil prices amid a broad financial market sell-off.
  • The U.S. rig count rose by 26 rigs in the week through Feb. 9 to a total of 791.

A crushing oil price rout extended into a sixth day, with U.S. crude nearly falling below $58 a barrel, as rising production, a strong dollar and a broad financial asset sell-off combined to weigh down the market.

The drubbing started last Friday and gathered steam this week, putting U.S. West Texas Intermediate crude on pace for its worst weekly performance in two years.

U.S. crude plunged to a seven-week low at $58.07 a barrel, before paring losses to end Friday's session down $1.95, or 3.2 percent, at $59.20.

Brent crude dropped $1.66, or 2.6 percent, to $63.15, after hitting a nine-week low at $61.77 by 2:28 p.m. ET.

For the week, U.S. crude was down nearly 9.6 percent, while Brent has fallen about 8 percent.

WTI broke below $59 a barrel after Baker Hughes reported the U.S. oil rig count rose by 26 rigs to 791, the highest total since April 2015.

The week's losses accelerated on Wednesday after government data showed weekly U.S. production jumping to a record 10.25 million barrels a day. Meanwhile, the nation's stockpiles of crude rose for a second straight week.

With American output on the rise, concerns are creeping into the market that OPEC's deal with Russia and other major producers to limit supply could come under pressure, said John Kilduff, founding partner at energy hedge fund Again Capital.

The head of Russian energy giant Gazprom Neft on Friday said producers could adjust their commitments under the deal as soon as next quarter, Reuters reported. Gazprom CEO Alexander Dyukov said he hoped producers would agree to raise output since the market has balanced after years of oversupply.

"It goes to the sense that folks are getting antsy about the production scheme holding together," he said.

Meanwhile, the dollar index is holding above 90 cents, putting pressure on commodities. A stronger greenback makes it more expensive for holders of other currencies to buy dollar-denominated commodities like oil.

The inverse relationship between the assets — in which oil prices fall when the dollar rises and vice versa — has recently reasserted itself.

But commodities were also getting swept up in a broad market volatility. The Dow Jones industrial average has twice this week closed down more than 1,000 points and is now trading in negative territory for the year, along with the S&P 500.

"The correlation with the S&P 500 has picked up, so to the extent it's been going down, we've been going down too," Kilduff said.

Also looming over market is a record number of net long positions in crude contracts, which signals that many traders still have a bullish outlook for oil prices.

The number of long positions has marched higher in recent months, while short positions, or wagers that prices will fall, have cratered over the same period. That positioning creates ample opportunity for profit-taking, which can spark a selling stampede as traders who borrowed to buy futures rush to cover those positions.