Oil Retreats, Set to Become First Quarter's Worst-Performing Asset

Oil prices fell on Friday after a three-day rally ran out of steam as a higher U.S. rig count signaled rising production from shale, contributing to the global supply glut.

Prices have been locked within a range during the first quarter as traders searched for signals that the Organization of the Petroleum Exporting Countries' production cuts are effective or that U.S. production is continuing to offset efforts to rebalance the market.

Brent crude futures <LCOc1> have made the biggest losses across global asset classes this quarter. In March, the contracts posted the biggest monthly losses since July as growing U.S. crude inventories and drilling activity counterbalanced production cuts elsewhere in the world.

Brent futures were down 26 cents at $52.70 a barrel by 2:12 p.m. EDT (1812 GMT). The contracts have lost around 7 percent since the previous quarter, the worst quarterly losses since late 2015.

U.S. crude futures <CLc1> were up slightly, rising 35 cents to $50.69 a barrel after slipping back below $50. They, too, are on track to end the quarter around 7 percent lower, also the worst quarterly loss since late 2015.

Oil prices had gained momentum this week on a growing sense that OPEC and nonmember Russia would extend their production cut, seeking to drive the market higher.

"There's resistance at $52 to $53 a barrel," said Tony Headrick, energy market analyst CHS Hedging. Additionally, the WTI-Brent spread, which has widened, is narrowing slightly after exports picked up last week, he said.

The U.S. energy department released supply and demand figures for January, the latest month available on Friday, saying that the country's oil demand for that month was up 0.9 percent at 19.234 million barrels per day, while production rose 60,000 bpd to 8.835 million barrels. [EIA/PSM]

Energy services firm Baker Hughes said U.S. oil rigs increased by 10 to 662 in the week, making the first quarter the strongest for oil rig additions since mid-2011. [RIG/U]

The indicator has shown huge gains, with the rig count doubling in a 10-month recovery and undermining efforts led by OPEC to rein in output.

"I wouldn't be surprised to see some profit-taking ahead of the weekend after the strong gains in recent days," said Carsten Fritsch, commodity analyst at Commerzbank.

OPEC and non-OPEC producers including Russia agreed late last year to cut output by almost 1.8 million barrels per day in the first half of 2017 to ease a global supply overhang and prop up prices.

Nevertheless, analysts polled on a monthly basis by Reuters have slightly lowered their oil price expectations for this year.

(Additional reporting by Henning Gloystein in Singapore and Karolin Schaps in London; editing by Chizu Nomiyama and Richard Chang)