SINGAPORE: Oil futures fell further in Asian trade on Friday after running into resistance at the $50 a barrel mark, as investors worried higher prices could reactivate shuttered crude output, adding to global oversupply.
Prices were also pressured by a stronger greenback with the dollar index .DXY rising against a basket of major currencies on Friday.
Oil pushed through $50 for the first time in around seven months on Thursday after supply disruptions from Canadian wildfires and attacks in Libya and West Africa helped cut daily output by 4 million barrels, before easing to close down on the day.
Brent LCOc1 fell 38 cents, or 0.8 percent, to $49.21 by 0258 GMT on Friday, retreating further from the previous session’s $50.51 peak, its highest since early November.
U.S. crude CLc1 dropped 36 cents, or 0.7 percent, to $49.12 a barrel after settling down 8 cents in the previous session. It touched $50.21 on Thursday, it’s highest since early October.
“Shale is the new shock absorber to the market,” said Tony Nunan, oil risk manager at Tokyo’s Mitsubishi Corporation.
“There is a wide range of production costs. Shale’s total production costs are around $48-$50 a barrel there will be producers who make money at $50,” Nunan said.
Oil prices, which have risen nearly 90 percent from 12-year lows hit earlier this year, face pricing barriers to moving higher in the next three to five weeks, technical analysts said on Thursday, with Brent facing a significant hurdle at around $52 a barrel.
“WTI and Brent futures went through $50 a barrel on tightening supply, but unsurprisingly hit stubborn resistance at that key level and then eased back,” ANZ said in a note on Friday.
Investors were also awaiting the appearance of U.S. Federal Reserve Chair Janet Yellen at an event later on Friday for further indications on when the Fed could raise interest rates.
A meeting of the oil producer’s cartel, the Organization of the Petroleum Exporting Countries on June 2 may give further direction to oil markets, Nunan said.
“Most people feel the meeting will be neutral or bad,” he said, with a neutral outcome leading to no change in oil output, while moves by producers like Saudi Arabia to boost production, would be bad.
“The Fed meeting could be the bigger trigger. An increase in interest rates will mean a higher dollar, a higher dollar means more expensive crude which could trigger a commodities sell-off.”
A raft of Fed officials have called for a normalization of interest rates as the U.S. economy and inflation rise, with the odds of a June hike now around 34 percent, compared with 4 percent last week, ANZ analysts said.