U.S. West Texas Intermediate and international benchmark Brent crude oil futures edged lower for a second straight session on Friday but held on to enough of its earlier advances to post a gain for the fifth week in a row.
The markets have been feeling pressure since it touched a multi-year high on Thursday. Traders started taking profits after a U.S. government report showed an unexpected rise in U.S. crude and fuel inventories.
On Friday, March WTI crude oil futures settled at $85.14, down $0.41 or -0.48% and April Brent crude oil finished at $87.08, down $0.53 or -0.61%. The United States Oil Fund ETF (USO) closed at $60.79, up $0.13 or +0.21%.
Prices were supported earlier in the week as tensions in Eastern Europe and the Middle East heightened fears of supply disruption. Reuters reported that top U.S. and Russian diplomats made no major breakthrough at talks on Ukraine on Friday buy agreed to keep talking to try to resolve a crisis that has stoked fears of a military conflict.
U.S. energy firms this week cut oil rigs for the first time in 13 weeks after crude prices fell for six weeks in a row from late October-early December.
The combined U.S. oil and gas rig count, an early indicator of future output, rose by three to 604 in the week to January 21, the highest since April 2020, energy services firm Banker Hughes Co said in its closely followed report on Friday.
Baker Hughes said that puts the total rig count up 226 rigs, or 60%, over this time last year.
U.S. oil rigs fell by one to 491 this week, while gas rigs rose four to 113, their highest since January 2020.
WTI and Brent crude oil could feel some short-term pressure until the market absorbs the crude oil build, the drop in refinery runs and the rise in gasoline inventories to their highest levels since February 2021.
The short-term bias could extend well into next week due to a pair of wildcards including an escalation of the Russian-Ukraine situation and the dumping of riskier assets.
A Russian invasion of Ukraine could have a major effect on crude oil since it is a member of OPEC+. On the bearish side, the U.S. and its allies impose sanctions on the country, which could include a boycott of Russian oil. On the other hand, it may lead to a drop in Russian oil production.
The stock market sell-off is also something to watch because it could force hedge funds to sell profitable long positions in crude to cover margin calls.