Oil Prices Hit Three-Year Highs on Growth, Geopolitics

Oil Prices Hit Three-Year Highs on Growth, Geopolitics

Brent hit US$68.27 last week, the highest since May 2015.

Yet, surging USA production could offset some of the cuts from OPEC producers, as US production rose to 9.78 million barrels a day (MMBPD) in the latest week, according to last Wednesday's report. Reinstating economic sanctions could limit Iran's oil exports.

"The fact that the crude benchmarks are establishing highest levels since spring of 2015 on very little fresh fundamental input continues to suggest a strong market underpinning", said Jim Ritterbusch, president of Ritterbusch & Associates, in a Tuesday note.

Traders and analysts surveyed by The Wall Street Journal expect government data due Wednesday to show crude stockpiles declined on average by 2.5 million barrels in the week ended January 5, which would mark the eighth consecutive week of inventory draws if estimates are accurate.

OPEC officials also think the 2018 rally has been mainly driven by unrest in Iran, rather than a tighter balance between supply and demand, giving rise to concern it may not last.

The growth of North American shale production, which caused an estimated 5 percent increase in USA crude output in 2017, has rocked the oil industry in the past few years, spurring OPEC and other traditional producers to cut output to trim global inventories.

Traders said political tensions in Iran, the third-largest producer in the Organization of the Petroleum Exporting Countries, had pushed prices higher. US commercial crude inventories fell by 7.4 million barrels (MMBbl) in the week ended December 29, to 424.46 MMBbl, according to data from the Energy Information Administration.

Crude oil futures continued to surge Tuesday on expectations the global oil market will soon re-balance.

The agreement, which was implemented at the start of 2017, was meant to rein in the global supply glut and raise prices.

"The U.S. oil price is now into a range that is anticipated to attract increased shale oil production", said Ric Spooner, chief market analyst at CMC Markets in Sydney.

Even so, US production is expected soon to rise above 10 million barrels per day, close to Saudi levels, due largely to soaring output from shale drillers, government data shows.

Despite this, US production is expected soon to rise above 10 million barrels per day, largely thanks to soaring output from shale drillers.

Futures extended gains to as much as 1.7% in NY.



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