Brent slipped below $108 a barrel on Friday, reversing direction after two straight days of gains, as the dollar strengthened and demand concerns from industrialised nations weighed on prices.
Brent crude for September fell as low as $107.20 a barrel and traded 48 cents lower at $107.54 earlier on Friday. The benchmark is poised to gain 1% on the week, reversing the previous week’s slump of 9.3%.
US oil slipped as low as $84.85 a barrel and traded 81 cents down at $84.91. In its third consecutive week of decline, the contract is set to fall 2.6% against a fall of 9% last week.
A strong US jobs report, which helped oil gain as much as 3% in the previous session, is not enough to keep pushing prices higher, and wide swings will continue until the market sees a clear demand trend emerging, analysts said.
The US dollar gained further after posting its best day ever against the Swiss franc on Thursday.
“The market needs strong indicators to be convinced about demand for oil and for prices to go up steadily towards $100,” said Ken Hasegawa, a commodity derivatives manager at Japan’s Newedge brokerage. “Till then, we are going to see big volatility and swings of up to $2 to $3 in a day.”
The deterioration in the economic growth outlook and the re-emergence of signs of stress in financial markets have created more downward pressure on oil, JP Morgan said in a report.
While the bank retained its view of Brent averaging $110 a barrel in this quarter and $115 in the next, due to supportive market fundamentals, it said recent downgrades to economic growth had prompted JPMorgan to reduce about 250,000 barrels per day from the demand growth outlook for the second half of the year to 1.1 million to 1.2 million barrels per day.
“Yet fundamental support for oil prices suggests that further downside is limited in all but the direst of situations, which, given the stronger position of corporate balance sheets, still seems remote,” the report said.
Crude rose on Thursday after a report from the Labor Department showed the number of Americans claiming new jobless benefits fell by 7000 last week to a seasonally adjusted 395,000, the lowest since early April. The report offered hope for an economy battered for days by a credit rating downgrade and falling share prices.
Brent settled $1.34 higher at $108.02 a barrel, having swung between $104.43 and $108.08, adding to the 4% leap on Wednesday. US crude settled up 3.41% at $85.72 a barrel. On Wednesday, it rose 4.5%.
Oil trading volumes were also strong for a sixth straight day as traders piled into riskier assets such as commodities and equities. Gold dropped 1%, extending losses from a fall of 1.6% in the previous session.
The rebound in Brent is approaching its end, as indicated by a rising wedge, while US oil is expected to end the current rebound below $86.79 per barrel, as a strong resistance zone of $85.23-$86.79 would force it to drop, Reuters technical analyst Wang Tao said.
“The jobs report is just one indicator, and everyday we are getting some indicators that are good and some that are bad,” Hasegawa said. “The market needs strong signs from both the US and Europe.”
The safe-haven Swiss franc nursed heavy losses in Asia on Friday, having posted record one-day falls against the dollar and euro after the Swiss National Bank threatened to step up its fight to curb the franc’s strength.
A ban on short-selling financial stocks in four European countries including France takes effect on Friday, a coordinated attempt to restore confidence in a market hit by rumours and higher borrowing costs.