Oil Loses Steam This Week as Dollar, Stocks Add to Shale Worries

After its best January since 2006, the oil market wrapped up the week on a slump as a stronger dollar and weaker stocks added to concerns over booming shale production.

Futures slipped 0.5 percent in New York on Friday, with oil inversely tracking the U.S. dollar and American equities headed for the worst week in two years. A stronger greenback reduces the appeal of raw materials as an investment. At the same time, worries over higher shale production added to the downward price momentum.

“The strong jobs report is certainly upping expectations for Fed rate hikes and that’s causing a little strength in the dollar, but is certainly causing some softness in the equity market,” Rob Haworth, who helps oversee $150 billion in assets at U.S. Bank Wealth Management in Seattle, said by telephone. “You are seeing a bit of a risk-off day that’s actually bleeding into the oil market.”

Crude in New York lingers near $65 a barrel, threatening to bring a flood of U.S. shale to the market. A bigger production surge is likelier than most expect, Ed Morse, global head of commodities research at Citigroup Inc., said in a Bloomberg Television interview. Drilling in the U.S. intensified for a second week, with six oil rigs added, according to Baker Hughes data on Friday.

West Texas Intermediate for March delivery dropped 35 cents to settle at $65.45 a barrel on the New York Mercantile Exchange. Prices posted a 1 percent decline this week.

Brent for April settlement fell $1.07 to end the session at $68.58 a barrel. The global benchmark crude closed at a premium of $3.51 to April WTI, the smallest since August.

The S&P 500 Energy Index tumbled almost 4.7 percent, with Exxon Mobil Corp., Chevron Corp. and Hess Corp. all dropping more than 5 percent.

The dollar rose after U.S. payrolls and average hourly earnings beat estimates and prior results were revised higher. The Bloomberg Dollar Spot Index added as much as 1 percent.

See also: United States Oil Fund’s returns on fire as backwardation booms

U.S. output surged above 10 million barrels a day for the first time in more than four decades in November, the Energy Information Administration reported earlier this week. Weekly production is also at a record-high level.

Oil has been tracking the dollar all week “and all of a sudden, oil prices are under pressure,” said Gene McGillian, a market research manager at Tradition Energy in Stamford, Connecticut, in a telephone interview. Meanwhile, “in the back of traders’ minds is the data that came out that showed U.S. crude production jumped above 10 million barrels a day back in November.”

In other market news:

Gasoline futures dropped 1.3 percent to settle at $1.8720 a gallon, the lowest level in two weeks. Hedge funds cut their bullish ICE Brent crude oil bets by the most since November, according to weekly ICE Futures Europe data on futures and options. Exxon Mobil Corp. and Chevron Corp., the two biggest U.S. oil explorers, each missed Wall Street’s profit and production estimates, spurring a stock selloff for both as wary investors hit the lifeboats. Weatherford International Plc dropped more than 16 percent after reporting worse-than-expected results for the fourth quarter and a lower forecast for the first three months of this year.