By Timothy Puko

Oil prices fell sharply Friday, a bearish end to the market's biggest week of losses in a month as traders reconsider the power of global exporters to ease a longstanding storage glut.

U.S. futures fell every session this week, shedding 7.8% since they hit a one-month high April 11. Trend spotters piled on Friday, brokers and traders said, extending a selloff that initially caused big losses Wednesday after data showed an unexpected addition to U.S. gasoline stockpiles.

The retreat comes at a time when many predicted that oil was beginning a slow, steady rally toward a $60 price that would be much more comfortable for the global oil industry. Many predict oil prices ator above $55 would be healthy for rebounding companies, especially in the U.S., helping highly indebted companies avoid losses and bankruptcy while also preventing an overexpansion.

But Friday's selloff shows trend spotters are now trading as though oil's next move is a retreat below $50 a barrel instead of an extended rally from last year's decade lows, brokers and traders said. That would damage prospects for an energy sector that had fed on oil prices that held above $50 a barrel for most of the past five months. Energy companies performed the worst in the S&P 500 this week, down 1.9%, and for this year to date, down 9.9%.

Many analysts had said oversupply has already faded, supporting higher commodity prices. Leaders of the Organization of the Petroleum Exporting Countries came out this week to say they are likely to extend output cuts introduced at the start of the year. But high U.S. supply and the market's inability to rallydespite sunny forecasts for the future have deepened the futures market's reversal.

Light, sweet crude for June delivery settled down $1.09, or 2.1%, at $49.62 a barrel on the New York Mercantile Exchange. Brent crude, the global benchmark, lost $1.03, or 1.9%, to $51.96 a barrel on ICE Futures Europe. Both had their lowest settlement since the last week of March.

Both also lost nearly $4, or more than 7% for the week, their largest weekly decline since the beginning of March. It snapped a three-week winning streak that had made many investors and analysts believe U.S. oil's dip below $50 in March was a temporary setback along oil's path to one of its calmest periods in years.

Instead, U.S. supply has stymied the rally for the second time since early March. A surprise addition to U.S. gasoline stockpiles reported Wednesday sent prices down nearly 4% in one session. The report from the U.S. Energy Information Administration alsoshowed slight production increases in the U.S. That reinforced fears that U.S. shale producers are becoming more capable of increasing output even with prices half of what they were three years ago.

The market failed to hold small rebounds both Thursday and Friday. Saudi Arabia Energy Minister Khalid al-Falih said Thursday that a handful of OPEC members have reached a tentative agreement to cut more supply. But other statements coming from OPEC leaders equivocated too much to give traders confidence in the cartel's next move, with plenty of wiggle room left for members to agree to output cuts for only another three months -- instead of six -- or backtrack entirely from an extension, brokers and analysts said.

"The ambiguity coming out of OPEC has people scratching. The technicians and the algorithms are all on the sell side," said Donald Morton, senior vice president at Herbert J. Sims & Co., who runs an energy-trading desk. Friday's selloff "is more of the follow through. More of the weakness. More of the same."

The technicians and algorithms Mr. Morton alluded to are trend spotters he and others say are now on alert for another leg lower. They move based on chart trends and momentum and are adding to the selloff. May's contract expired Thursday as the front-month futures contract with prices turning lower and falling into expiration, something many see as a bearish sign, especially after several other losing sessions.

"If we settle under $50 a barrel today, it could be a risk-off type of thing" and the selling continues, Tariq Zahir, who oversees $8 million as managing member of Tyche Capital Advisors LLC, had said early in the session.

It is, however, hard to be aggressively bearish with OPEC members planning to meet and possibly pass an extension just next month, Mr. Zahir added. Many still believe OPEC will extend output cuts until year's end.Others, though, pointed to the market's failed rebounds Thursday and Friday morning as potentially more bearish signs and growing skepticism of OPEC's ability to cooperate or impact the market even if they do, brokers and analysts said.

"The [lack of] reaction can either be attributed to saturation, as such news is released on almost a daily basis, or to the fact that the foremost goal of the OPEC agreement -- namely to reduce the huge stocks of crude oil and oil products -- is still a long way from being achieved, " Commerzbank said in a note.

Global crude stockpiles remain above the five-year averages despite OPEC's aim to cut them back to those levels. Many analysts expect those stocks to start draining soon -- a delayed effect as OPEC's cuts from the first quarter are likely only now reducing the number of new oil shipments arriving at onshore storage sites. But the fact they are still high could spook the market into a further selloff if OPEC doesn't extend its effort to counter U.S. production, analysts said.

"The length of the extension, the number of participating countries and the production to be sidelined remain key unknowns," said Vivek Dhar, a commodities strategist at Commonwealth Bank of Australia. If an extension is only for one quarter, such a move may be moot for the market's long-term health since it means non-U. S. producers will increase output anew, potentially sending stockpiles higher again.

Gasoline futures fell 2.6 cents, or 1.6%, to $1.6445 a gallon, the lowest settlement since March 28. It is down in seven of eight sessions. It lost 9.04 cents, or 5.2% for the week, its largest weekly decline in more than five months.

Diesel futures lost 5.56 cents, or 1.6%, to $1.5533 a gallon, its lowest settlement since March 29. It is on a six-session losing streak, longest since June. It posted its largest weekly losses since the week endedNov. 4, 5.8%.

--Sarah McFarlane and Jenny W. Hsu contributed to this article.

Write to Timothy Puko at tim.puko@wsj.com

(END) Dow Jones Newswires

April 21, 2017 16:28 ET (20:28 GMT)

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