SINGAPORE: Crude oil prices fell on Monday after US unions called a refinery strike and traders cashed in on strong price gains last week when the market soared on a sharp drop in US drilling.
Despite the decline, analysts said that record open interest – the number of outstanding futures contracts – indicated that prices may have bottomed out.
Brent crude oil futures were trading at $ 51.60 a barrel at 0440 GMT, down $ 1.39, while US WTI futures were at $ 46.96, down $ 1.28 a barrel.
The declines followed a jump back from six-year lows on Friday, as a record weekly decline in US oil drilling fuelled a frenzy of short-covering.
“Oil production in the shale basins will inevitably decrease as weaker, higher-cost producers shutter their operations. This supports our view that oil prices will recover this year and average $ 60 per barrel for Brent,” Nomura said.
While the potential drop in US oil output could lift markets in the mid-term, analysts said Monday’s declines were a result of profit-taking after last week’s gains, as well as rising output by OPEC that was offsetting lower US drilling.
Asian oil markets also opened to news of a strike at US refineries, potentially denting crude demand in coming days.
The United Steelworkers union called strikes at nine US refineries on Sunday to bring about a new national agreement that covers workers at 63 refineries, accounting for two-thirds of US refining capacity, said a source familiar with the union’s plans. The walkouts would be the first in support of a national accord since 1980.
Despite Monday’s falls, the jump late last week means that oil prices ended a run of range-bound trading within clear trendlines in January, following steep falls in 2014.
Along with returned volatility, Brent’s Intercontinental Exchange open interest rose to a record of almost 1.7 million by the end of last week, in a signal that traders have taken on new positions when prices hit new lows last month.
Brent rose back above $ 50 per barrel for the first time since early January last Friday, and its price also jumped above its 15 exponential daily moving average (DMA) value, a key technical indicator, for the first time this year.