Oil futures saw significant pressure Friday, with the U.S. benchmark pulling back from a 22-month high, as a rise by the U.S. dollar and jitters ahead of next week’s meeting of the Organization of the Petroleum Exporting Countries and its allies appeared to prompt a round of profit-taking.
A jump in U.S. Treasury yields on Thursday triggered global equity market jitters, while also lifting the U.S. dollar. A stronger dollar can be a negative for commodities, making them more expensive to users of other currencies.
The “domino effect is starting to hit commodities like oil, triggered by a correction in the reflation trade due to higher U.S. yields that are becoming a significant source of market volatility,” said Stephen Innes, chief global markets strategist at Axi, in a note.
West Texas Intermediate crude for April delivery fell $1.57, or 2.5%, to $61.96 a barrel on the New York Mercantile Exchange, after posting its highest front-month close since May 1, 2019, on Thursday. May Brent crude, the global benchmark, was down $1.50, or 2.3%, at $64.61 a barrel on ICE Futures Europe.
The ICE U.S. Dollar Index a measure of the U.S. currency against a basket of six major rivals, was up 0.5%.
OPEC+ ministers are scheduled to meet next week to discuss production curbs. Compliance with the group’s existing limits on output, along with Saudi Arabia’s unilateral decision to cut production by 1 million barrels a day in February and March, have been seen as a significant contributor to the 2021 oil rally.
But the price rise is seen stirring calls to loosen the curbs, driven in part by fears U.S. shale producers and others will increase output in response to stronger prices and steal market share from OPEC+ members.
“Personally, I think that OPEC+ will manage the situation, most likely by adding 125,000 barrels a day a month over the next four months for a total of 500,000 barrels. That would get OPEC+ to summer driving season with demand supersized on vaccine/stimulus…hopefully,” said Robert Yawger, director of energy futures at Mizuho Securities USA, in a note.