New York: Oil markets fell around 1 percent on Friday, retreating from seven-month highs, as traders weighed the prospect of crude production intensifying because of prices near $50 a barrel despite supply outages in recent weeks that eased a global glut.
A stronger dollar also weighed on demand for dollar-denominated oil from holders of currencies such as the euro. U.S. Federal Reserve Chair Janet Yellen will speak at an event at 1:15 p.m. EDT (1715 GMT) that could give hints of whether the Fed will hike interest rates next month.
A three-day weekend for the United States, owing to Monday`s Memorial Day holiday, further discouraged investors from holding bullish bets.
"People are worried crude production will come roaring back at these prices," said Phil Flynn, energy markets analyst at the Price Futures Group in Chicago.
"But I also think we are down because of higher interest rate concerns and the longer weekend," Flynn said. "You don`t want to be long on a $50 position when oil could be below $48 by the time the new week opens."
Brent crude futures were down 59 cents, or 1.2 percent, at $49 a barrel by 10:39 a.m. EDT (1439 GMT). They hit$50.51 on Thursday, their highest since early November.
U.S. crude slipped by 35 cents to $49.13. It rose to $50.21 in the previous session, its highest since early October.
Oil pushed past $50 after supply disruptions from Canadian wildfires and militant attacks in Nigeria helped cut global daily output by 4 million barrels.
"Most of these outages are unlikely to last," UBS analyst Giovanni Staunovo said, anticipating the resumption of supply and higher production by the Organization of the Petroleum Exporting Countries to pressure prices.
Market participants will closely watch an OPEC oil ministers meeting next week for signs of an intensifying battle for market share among Saudi Arabia, Iran and Iraq.
Oil at or near $50 could also spur more U.S. shale output, analysts said.
"Shale`s total production costs are around $48-$50 a barrel," said Tony Nunan, oil risk manager at Tokyo`s Mitsubishi Corp. "There will be producers who make money at $50."
Dominick Chirichella, senior partner at New York`s Energy Management Institute, agreed that shale producers were likely to put drilled but uncompleted wells, or DUCs, into production at these price levels.
"Industry estimates place the DUCs around 300,000 to 400,000 (barrels per day) of crude oil production once they have been completed," he added.
Investors will be looking out for a weekly report on the U.S. oil rig count at 1:00 p.m. EDT (1700 GMT) to gauge whether shale production is rising.