By Henning Gloystein
SINGAPORE (Reuters) – Crude oil prices fell early on Monday after U.S. unions called a refinery strike and traders cashed in on strong price gains last week when the market soared more than 8 percent on a sharp drop in U.S. drilling.
Brent crude oil futures were trading at $51.45 a barrel at 0240 GMT, while U.S. WTI futures were at $46.73 – both down over $1.50 per barrel.
The declines followed a jump back from six-year lows on Friday, as a record weekly decline in U.S. oil drilling fueled 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 on Monday.
While the potential drop in U.S. 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 the U.S. drilling cuts.
“Announcements of cuts to exploration and production budgets by some oil producers supported sentiment. However, reports suggest OPEC production rose … in January, led by supply gains in Iraq, Saudi Arabia, and Angola,” ANZ bank said in a note.
Asian oil markets also opened to news of a strike at U.S. refineries, potentially denting crude demand in coming days.
The United Steelworkers union called strikes at nine U.S. refineries on Sunday to bring about a new national agreement that covers workers at 63 refineries, accounting for two-thirds of U.S. 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 following earlier steep falls.
International Brent benchmarks rose back above $50 per barrel for the first since early January, and they also jumped above its 15 exponential daily moving average (DMA) value, a key technical indicator, for the first time this year.
Analysts said that Monday’s falls were driven by technical factors.
Brent oil may break support at $51.72 per barrel and drop to $50.93, as indicated by its wave pattern and a Fibonacci projection analysis, said Reuters market analyst Wang Tao.
(Reporting by Henning Gloystein; Editing by Richard Pullin and Joseph Radford)
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