wsj.com / Oil Prices Rise, Capping Volatile Week

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SHAFAQNA – Oil prices rose on Friday, capping a turbulent week that saw futures swinging between big gains and heavy losses. Market participants said oil prices, which have fallen more than 50% in the past seven months, could be bottoming out as producers react to the low prices by cutting expenditure and reducing drilling activity. Analysts cautioned that the global oil market is still oversupplied and there are few signs of a major uptick in demand, so prices could slip yet again.

ENLARGEMen work at an oil site in the Bakken formation in North Dakota in late 2013. Photo: Minneapolis Star Tribune/Zuma Press

Oil prices maintained early gains after the Labor Department said that U.S. nonfarm payrolls grew by a seasonally adjusted 257,000 in January, more than the 237,000 jobs that analysts had expected. The government also raised its estimates of new jobs added in November and December.

U.S. oil for March delivery rose $1.82, or 3.6%, to $52.30 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, rose $1.80, or 3.2%, to $58.37 a barrel on ICE Futures Europe.

Employment growth can buoy demand for petroleum products, especially gasoline, as more commuters drive to work.

However, signs of an improving U.S. economy can also boost the dollar, and a stronger dollar can weigh on oil prices by making the dollar-denominated commodity more expensive to buyers using foreign currencies.

The dollar rose Friday following the jobs data.

“That dollar strength coming through doesn’t show any signs of faltering,” said Matt Smith, commodity analyst at Schneider Electric SA, an energy-consulting firm. In the oil market, he said, “I wouldn’t be surprised if we see some gains given back.”

Traders are waiting for a weekly count of rigs drilling for oil in the U.S., which has fallen sharply in recent weeks to a three-year low. A continued drop in the rig count would indicate that producers are pulling back on new oil production, a sign that the current oversupply of oil could shrink in future months.

Oil prices gained nearly 20% in the first half of this week, but prices sank again midweek as a report showed soaring U.S. oil supplies. On Thursday, oil rallied again, with U.S. crude regaining the $50-a-barrel level.

“We attribute the latest dynamic price surge first and foremost to a marked increase in investor interest,” analysts at Commerzbank said. “Many investors regard oil prices as low and are keen to profit from the anticipated price increase.”

While the decrease in the U.S. oil-rig count suggests that production growth in the U.S. will flatten in the foreseeable future, the global oil market is still heavily oversupplied, the bank said.

Late Thursday, Saudi Arabia increased its oil prices for U.S. buyers, and reduced its prices for Asian buyers in what some interpreted as a signal that the kingdom will keep oil flowing to maintain market share at the expense of U.S. shale-oil producers. Saudi Arabia is the biggest producer in the Organization of the Petroleum Exporting Countries, which has repeatedly declined to cut its output despite the rout in prices in a bid to defend its market position.

The recent volatility in oil prices left some market observers baffled about where crude is headed.

“The message is that the ground is very slippery underfoot and next week we could find Brent challenging support at $50 a barrel or resistance at $60,” said David Hufton of London oil brokerage PVM.

Gasoline futures rose 3.90 cents, or 2.6%, to $1.5638 a gallon. Diesel futures gained 4.47 cents, or 2.5%, to $1.8506 a gallon.

Source : Write to Georgi Kantchev at georgi.kantchev@wsj.com and Nicole Friedman at nicole.friedman@wsj.com

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