Oil slipped under $116 per barrel on Friday, ahead of a US payrolls report, and was poised for its steepest weekly fall since December due to concerns over the health of the global economy and easing fears over supply disruption.
The jobs data will help investors gauge the outlook for oil demand growth in the world's biggest economy amid renewed concerns the country's recovery may be faltering. Businesses outside the farm sector are expected to have added 170,000 jobs last month, according to a Reuters survey.
Brent crude oil futures were 79 cents lower at $115.29 a barrel by 11:11 SA time, after racking up a 3 percent loss in two straight sessions, the benchmark's biggest two-day percentage loss since February 28. U.S. crude fell by 90 cents to $101.64, after ending about 2.5 percent lower.
“What we are seeing today is prices trading in a tight span, in a holding pattern, ahead of the jobs data,” said Victor Shum, senior partner at oil consultancy Purvin & Gertz.
“Fundamentally, there is more downside risk to oil because inventories are high and there are signs of weakness in global demand growth.”
Oil and commodities plunged across the board on Thursday, as slower-than-expected growth in the US services sector sparked a wave of selling that sent prices crashing through technical support levels on price charts.
Brent is poised to fall 3 percent this week, its steepest slide since the week ended December 18, while US oil is set to drop more than 2 percent, its biggest weekly decline in a month.
“There is a lack of directional conviction, in terms of the absence of strong fundamentals or economics news, so you're looking at the market coming off the highs of the February rally,” BNP Paribas head of commodities strategy Harry Tchilinguirian said.
“CFTC (Commodity Futures Trading Commission) data over the last couple of weeks has seen investors cutting back on exposure to futures, so with less support in terms of commitment and a low volatility environment, people are taking profits on oil.”
Oil prices also came under pressure after industry data provider Genscape reported that crude inventories at the Cushing, Oklahoma, delivery point for US futures hit a fresh record high on May 1.
The Organization of the Petroleum Exporting Countries (OPEC)is working hard to bring down oil prices that jumped towards $130 a barrel earlier this year, its secretary general said on Thursday, and is pumping much more than its official target even as exports from member country Iran dwindle.
“We are seeing a slightly easing situation as far as the supply-demand balance is concerned against the backdrop of the global economic growth and OPEC production levels,” said Ric Spooner, chief market analyst at CMC Markets. “There is a downside bias to oil prices.”
Against worries of a slowing global economy and rising inventories, progress in talks over Iran's nuclear programme is easing fears among investors of a supply disruption from the Middle East.
The five permanent members of the UN Security Council said they expected talks with Tehran to lead to concrete steps toward a negotiated solution.
Iran and major powers resumed talks in mid-April in Istanbul after a gap of more than a year, with investors viewing the resumption as a chance to ease escalating tension and help to avert the threat of a new Middle East war. They are to meet again on May 23 in Baghdad.
Brent has gained 8 percent this year, touching a high of over $128 in March, on concerns that escalating tensions with the West over Iran's disputed nuclear programme would disrupt supplies from the Middle East.
“Things will change completely if there is a major supply disruption, but as of now the resumption in talks is helping ease those concerns,” Spooner said.
“Brent has more to lose than US prices because there was a bigger supply risk premium attached to Brent.”
Brent will extend losses to $113.77 per barrel, as a preceding downtrend from the March 23 high of $127.06 has resumed, according to Reuters technical analyst Wang Tao.
US oil will extend its Thursday loss to $101.82, a break below which will trigger a further loss to the April 10 low of $100.68, he added. - Reuters