By Steve Gelsi, MarketWatch NEW YORK (MarketWatch) - Energy stocks extended their losses on Friday, after retreating in the previous session, as crude oil prices fell on a stronger dollar and investors mulled fat supplies of fossil fuels. The NYSE Arca Oil Index (XOI 1,070, -13.58, -1.25%) fell 0.3% to 1,080. The NYSE Arca Natural Gas Index (XNG 534.02, -7.71, -1.42%) dipped 0.3% to 540. The Philadelphia Oil Service Index (OSX 203.88, -5.67, -2.71%) fell 0.8% to 208. Crude futures dropped 35 cents to $81.85. The week's storage data continued to dog the sector, despite some upbeat economic headlines in recent days. Thursday's natural gas inventory data showed a draw of 11 billion cubic feet, less than the forecast of 35 billion cubic feet, noted analysts at Tudor Pickering Holt. On the oil front, data compiled by the Energy Information Administration reported U.S. crude oil inventories rose 1 million barrels for the week ended March 12. Although the figure was better than expected, petroleum stockpiles continue to climb. Among stocks in the spotlight, Nexen Inc. (NXY 23.47, -0.09, -0.37%) said Royal Dutch Shell (RDS.A 58.61, -1.14, -1.91%) made a "significant discovery" in the Eastern Gulf of Mexico at the Appomattox well in Mississippi Canyon blocks 391 and 392. Nexen holds a 20% stake in the project, and Shell operates the well and owns 80%. Located in 7,217 feet of water, the discovery well was drilled to a depth of 25,077 feet and encountered approximately 425 feet net true vertical thickness of oil pay. "Well results have exceeded our pre-drill expectations," the company said. Nexen said it's studying development options for Appomattox and Vicksburg, located six miles east. "We are looking forward to additional drilling at Appomattox to confirm the estimate of total resource and move the discoveries towards development," Nexen said. Nexen's shares rose 0.6% to $23.71. Royal Dutch Shell dropped 1.3% to $58.98.

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