Oil price drops 1% as economic outlook weakens, US supply surges

Brent crude futures for September delivery had dropped 33 cents, or 0.5%, to $64.73 a barrel by 0034 GMT. They climbed more than $2 a barrel on Monday before paring gains later in the day. U.S. crude futures for August had fallen 48 cents, or 0.8%, to $58.61 a barrel, after touching their highest in over five weeks on Monday.

NEW YORK: Oil prices fell about 1 percent on Friday after disappointing U.S. job growth revived concerns about a slowing global economy and weaker demand for oil.

With surging U.S. oil supply also unsettling markets, Brent crude futures fell 56 cents, 0.8 percent, to settle at $65.74 a barrel. The international benchmark gained 1 percent for the week.

U.S. West Texas Intermediate (WTI) crude futures fell 59 cents, or 1 percent, to settle at $56.07 a barrel. WTI still ended 0.5 percent higher for the week, however.

U.S. job growth almost stalled in February, with the economy creating only 20,000 jobs amid a contraction in payrolls in construction and several other sectors. The report dragged down U.S. stock markets, along with oil futures.

Financial markets also took a hit after comments on Thursday from European Central Bank President Mario Draghi that the European economy was in "a period of continued weakness."

"If we see equity markets continue to sink, it will eventually drag energy prices lower with it," said Brian LaRose, a technical analyst at United-ICAP.

The European and U.S. economic weakness comes as growth in Asia is also slowing.

China's dollar-denominated February exports fell 21 percent from a year earlier, representing the biggest drop in three years, far worse than analysts had expected. Imports dropped 5.2 percent.

"We've witnessed this week a rekindling of worries about demand growth," said Gene McGillian, vice president of market research at Tradition Energy in Stamford, Connecticut.

So far oil demand has held up, especially in China, where imports of crude remain above 10 million barrels per day (bpd). Yet a slowdown in economic growth could eventually dent fuel consumption and pressure prices.

On the supply side, oil has received support this year from output cuts led by the Organization of the Petroleum Exporting Countries. Saudi Arabia's crude oil production in February fell to 10.136 million barrels per day (bpd), a Saudi industry source told Reuters.

U.S. sanctions against the oil industries of OPEC members Iran and Venezuela have also supported futures.

But the United States is giving individuals and entities more time to wind down certain financial contracts or other agreements related to Venezuela's state-owned oil company, the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) said.

Meanwhile, U.S. crude production has increased by more than 2 million bpd since early 2018 to 12.1 million bpd, making America the world's biggest producer.

Investment bank Jefferies said U.S. output growth was largely being fuelled by onshore shale production, which had recently benefited from investments by Exxon Mobil and Chevron.

However, U.S. energy firms this week cut the number of oil rigs operating for a third week in a row to the lowest level in 10 months, General Electric Co's Baker Hughes energy services firm said on Friday. [RIG/U]

Hedge funds and other speculators raised their combined futures and options position in New York and London by 21,416 contracts to 155,426 in the week ended March 5, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday. - Reuters