By Geoffrey Smith
Investing.com -- Crude oil prices fell on Friday, succumbing to a profit-taking but still on course for a gain of over 3% on the week.
Prices weakened after the U.S. labor market report showed a sharp slowdown in net job creation in July, even though the 1.76 million rise in nonfarm payrolls was extraordinary by historical standards and slightly above the consensus forecast.
The figures were nonetheless not strong enough to dispel worries about the strength of the U.S. economic rebound, and all that that means for the supply-demand balance in the global market.
By 10:50 AM ET (1450 GMT), U.S. crude futures were down 1.3% at $41.42 a barrel. The international benchmark Brent was down 0.9% at $44.67 a barrel.
Chinese trade data released earlier had showed evidence of sustained record buying by Chinese importers in July, helped by the weakening of the U.S. dollar against the yuan in the last three weeks.
Paul Sankey of Sankey Research noted that dollar weakness, rather than Chinese demand, is likely to remain the more durable pillar of support for prices.
“The Chinese inventory build cannot drive prices for more than a couple of months,” Sankey argued. “However, a structural ongoing weakness in the US$ can.”
Prices were also still supported by confidence that the OPEC+ bloc of producers won’t return to competing for market share, after reports of talks between Saudi Arabia and Iraq on Thursday over how to compensate for the latter’s quota-busting under the current deal on output restraint.
Bjornar Tonhaugen, head of oil markets at Rystad Energy, said in e-mailed comments that involuntary output shortfalls could still have a meaningful impact on the supply-demand balance for the rest of the year. He noted that Libya is still producing 1.1 million barrels a day less than its capacity due to disruptions stemming from its civil war.
Tonhaugen now expects Libyan production to average no more than 800,000 barrels a day by the end of the year even in the most optimistic scenario.
“Our latest global liquids balances report still suggests there will be a shift towards a surplus from August and for the ensuing three months,” Tonhaugen said in emailed comments, “but it is less precarious than previously estimated and developments in Libya have a lot to do with this revision.“