(Bloomberg) — Oil fell alongside other financial assets and commodities as crude’s red-hot rally to a seven-year high ran out of steam.
Futures in New York slumped more than 3%, before paring losses to trade near $85 a barrel, as stock markets and raw materials including copper declined. Crude has gained more than 10% so far this year, despite weakness in equities as monetary policy tightens.
Though crude was pressured on Friday, much of Wall Street has been growing steadily more bullish. Morgan Stanley has joined Goldman Sachs Group Inc. in forecasting $100 oil later this year, but Citigroup Inc. cautioned that sticking to a bullish view could be dangerous after this quarter. The International Energy Agency this week said the oil market was looking tighter than previously thought, with demand proving resilient despite the rapid spread of omicron.
While commodities have been extremely resilient at the start of the year due to supply risks and geopolitical concerns, they won’t “continue to be completely insulated from sells offs as continued risk off tone to markets will start to weigh on crude,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Management.
Crude’s bumper rally had pushed many of the main futures contracts into overbought territory on a technical basis. Brent, WTI and heating-oil futures all moved out of that zone amid the sharp price pullback early Friday.
“Crude oil prices have fallen back from their recent highs alone with risk assets following the sharp reversal on Wall Street Thursday,” said Fawad Razaqzada, a market analyst with ThinkMarkets. For Brent crude, a sharp sell-off could ignite if oil falls below $86.50, a level that has shown “significant resistance” in the past week , he added.
Still, the focus remains on how much further the Organization of Petroleum Exporting Countries and its allies can lift output. Pavel Zavalny, head of the Russian Duma Energy Committee, said restoring production won’t be easy amid technical challenges and underinvestment.
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