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Crude oil prices regain 1% on Friday but head to their biggest weekly decline

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Crude oil prices regained more than 1% on Friday, but are heading to mark their biggest weekly decline since the start of the year, as rising inventories and worries about the global economic slowdown have led to major falls.

The futures of Brent oil added 0.89 USD to 68.65 USD per barrel, backed by OPEC supply cuts and tensions in the Middle East. The futures on US light WTI crude rose by 0.74 USD to 58.65 USD per barrel.

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Numerous supply risks remain amid the ongoing tensions between Iran and the United States, which may prove to be destructive.

The Organization of Petroleum Exporting Countries (OPEC) has introduced supply cuts since the beginning of the year, which aimed at tightening the market and raising prices.

Meanwhile, the US sanctions against the oil industry in Iran and Venezuela are likely to further reduce OPEC’s crude oil exports. Both countries are members of the cartel.

Today’s rise in prices will not compensate significantly the larger drops from the week, which is why futures on the two benchmarks are set to mark their biggest weekly declines since the beginning of the year. The price of Brent variety is likely to register a weekly decline of over 5%.

Since the middle of the week, the rising US oil inventories have supported the prices. Growing stockpiles and declining industrial activity in the US have deepened trade-related worries about global demand.

The oil inventories are growing not only in North America. The Asian refineries’ margins, which fail to cope with the slowdown in the economy and the overfilling of fuels, have reached their lowest seasonal level at least since the financial crisis ten years ago.

Oil remains highly vulnerable to any trade news, and given the expected decline in Asian currencies and exchanges, any price expectancy may be short-lived.

US crude oil inventories

The Energy Information Administration on Wednesday reported that US crude supplies rose by 4.7 million barrels for the week ended May 17, marking a second weekly climb in a row. Analysts polled by S&P Global Platts expected a fall of 2 million barrels, on average. However, data from the American Petroleum Institute on Tuesday had shown an increase of 2.4 million barrels.

The total domestic crude production was estimated at 12.2 million barrels a day last week, up 100,000 barrels from the previous week, the report said.

The EIA data also revealed that gasoline inventories climbed by 3.7 million barrels, while distillate stockpiles edged up by 800,000 barrels last week. The S&P Global Platts survey had shown expectations for a supply climb of 1 million barrels for gasoline and a decline of 1 million barrels for distillate stockpiles.

Despite a chunky drop in imports, refinery runs below year-ago levels have encouraged a second consecutive build to crude inventories—now up over 37 million barrels, or 8.5%, in the last nine weeks.

US rig count

The US oil and natural gas rigs totalled 1,074 for the week ended May 22, according to data by S&P Global Platts Analytics.

This represents a net increase of nine from the prior week’s 1,065 and down 89 from the same week a year ago. US oil and gas rigs permits, an indicator of future activity, totaled 965 for the week ended May 22, down five from the prior week and up 17 from the same week a year ago.

While the rig count is up versus the prior week, one-third of the growth is from offshore drilling. The horizontal rig count only changed by the addition of one rig. So, in the unconventional plays, the week-over-week figures were relatively flat. On a related note, rig utilization has been trending down as it is approaching levels that tend to signal pricing weakness for future day rates.

The prolific Permian lost seven rigs week over week, the most of any unconventional play.