Oil prices retreat from 1-year high alongside global market selloff

“Oil has had an incredible run,” so prices were due for a correction, said Phil Streible, chief market strategist at Blue Line Futures LLC in Chicago
Oil edged lower as crude’s rally on a tightening global supply outlook lost some momentum amid a broader market decline.

Futures in New York fell as much as 0.9 per cent on Thursday with US equities weakening amid concerns that markets could soon face accelerating inflation. Meanwhile, technical indicators show crude hovering in overbought territory after skyrocketing to one-year highs this week.

“Oil has had an incredible run,” so prices were due for a correction, said Phil Streible, chief market strategist at Blue Line Futures LLC in Chicago. “But the tailwinds of oil going up are still there, so any kind of correction will likely be short-lived.”

The oil futures curve continues to signal a tighter market in the midst of global inventories declining. Brent’s nearest timespread is trading at a nearly $6 a barrel premium to the contract 12 months out, a bullish structure known as backwardation.

Oil is witnessing a stellar start to the year after Saudi Arabia’s deeper output cuts accelerated a rally triggered by Covid-19 vaccine breakthroughs. While there’s been a raft of calls by banks for oil prices to further rally, the market is facing a possible supply increase in April from Opec+. The producer group meets next week to discuss its strategy with key members again differing on the path forward.

Opec+ is “getting antsy now with prices being where they are,” said John Kilduff, a partner at Again Capital LLC. “They have a lot of spare capacity among themselves and the group, so it makes sense that they would want to respond.”

Shale explorers reported almost 6 million barrels of combined oil-output losses during the freeze last week. Occidental Petroleum and Pioneer Natural Resources, two of the largest producers in the Permian Basin, alone had a combined loss of about 3.8 million barrels, according to Bloomberg News calculations based on fourth-quarter earnings reports and calls.

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