By Georgi Kantchev
Oil prices fell Friday on profit-taking and a strong U.S. dollar
but the escalating conflict in Yemen was still capturing the
attention of the market.
Prices surged Thursday after Saudi Arabia and its allies
launched airstrikes against Iran-linked Houthi militants in Yemen,
though some analysts said the overall impact on oil supply would be
minimal and wouldn't change the fundamental picture of an
oversupplied global market.
Investors were also bracing for data later Friday on the number
of oil drilling rigs in the U.S. The rig count by has been falling
dramatically in recent months, feeding some investors' optimism
that U.S. production growth will soon start to slow.
Brent crude for delivery in May exchange slid 2.1% to be at
$57.95 a barrel on London's ICE Futures. On the New York Mercantile
Exchange, May-dated light, sweet crude futures recently traded at
$50.10 a barrel, down 2.6% from Thursday's settlement.
"Yemen itself is neither significant to global crude supplies
nor is it, tragically, unaccustomed to violence and war," Edward
Morse, global head of commodities research at Citigroup, wrote in a
note.
While Yemen is only a small oil producer, the country lies at
the heart of some of the most important energy routes. The
strategic Bab el-Mandeb Strait is one of the world's main transit
points for seaborne trade linking the Mediterranean Sea and the
Indian Ocean.
"Yemen's strategic location on one side of the Strait of Bab
el-Mandeb elevates its importance to global crude trade above its
own domestic production," Mr. Morse said. "However... there is no
indication that either side in the conflict has the means or the
intention of disrupting these flows."
A rally in the U.S. dollar was pushing oil prices down on
Friday. Oil, which is priced in dollars, becomes more expensive for
holders of other currencies as the dollar appreciates. The Wall
Street Journal Dollar Index, which tracks the dollar against other
major currencies, rose 0.4%.
Oil-market participants are awaiting the latest rig count data
by oil-field service company Baker Hughes. The number has fallen by
around half since a peak in October.
Some analysts cautioned that a reduction in the number of rigs
doesn't immediately translate into a fall in U.S. output, which is
currently running at a multiyear high of 9.4 million barrels a
day.
Investors are also tracking the negotiations over Iran's nuclear
program before a March 31 deadline.
"The real action for oil markets is in Iran, where negotiations
with world powers are reaching a critical stage," Daniel Hynes,
senior commodity strategist at ANZ Bank, said in a report. He said
anywhere between 14 and 18 supertankers are storing oil off the
coast of Iran in the Gulf of Oman, equal to more than 30 million
barrels.
"In the unlikely event that sanctions are immediately lifted,
the threat of Iran's inventories hitting the market could see Brent
oil prices hit recent cyclical lows," Mr. Hynes said.
Nymex reformulated gasoline blendstock for April--the benchmark
gasoline contract--fell 2% to $1.8438 a gallon, while ICE gasoil
for April changed hands at $540.25 a metric ton, down $5.25 from
Thursday's settlement.
Eric Yep in Singapore contributed to this article.
Write to Georgi Kantchev at georgi.kantchev@wsj.com