Crude Rally Hits Pause as Markets Reassess Economic Outlook

(Bloomberg) -- Oil prices closed lower for the first time in two weeks Friday as investors paused to assess the economic outlook and OPEC’s ability to counter the U.S. shale boom.

Futures in New York slipped 1.9 percent for the day, ending a nine-day rally that has pushed crude back into a bull market. Prices slipped along with the S&P 500 as the U.S. government shutdown showed no signs of ending, leaving some 800,000 federal workers without pay.

“It could be just a slight risk-off environment after four days of quite strong rallying in asset markets,” said Frances Hudson, global thematic strategist at Aberdeen Standard Investments in Edinburgh.

U.S. crude prices nonetheless notched their biggest weekly gain in six months, propelled by Saudi Arabia’s assurances that a global oil glut can be averted and positive signs from trade talks between American and Chinese negotiators.

Despite that momentum, the market may level out as traders await proof that OPEC supply cuts are translating into lower stockpiles in the U.S., said Mark Waggoner, president of brokerage Excel Futures.

“For another couple of weeks, things are just going to go sideways, but then OPEC’s numbers are going to start following through," he said. “Once that happens, you’re going to start to see prices go up again."

Prices remain 30 percent below the four-year highs they hit in October as U.S. shale output continues to surge and manufacturing shows signs of slowing across Europe and Asia.
West Texas Intermediate for February delivery fell $1 to settle at $51.59 a barrel on the New York Mercantile Exchange. Its 7.6 percent increase for the week was the best since late June.

Brent for March settlement declined $1.20 to $60.48 on the ICE Futures Europe exchange. The global benchmark traded at a premium of $8.57 a barrel to WTI for the same month.

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“On the supply side things have become much more to OPEC’s liking,” according to Hudson. “The question is how much more is production going to increase in the U.S.”

Saudi Arabian Energy Minister Khalid Al-Falih said on Wednesday that the cut of 1.2 million barrels a day agreed by the OPEC+ coalition will be sufficient to balance markets, and that the group is prepared for further action if it proves inadequate.

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