The price of brent crude oil rose to $70 per barrel yesterday, supported by ongoing output cuts led by OPEC and Russia, and ignoring a rise in United States and Canadian drilling activity that points to higher future output in North America.
Brent sweet crude futures, the international benchmark for oil prices, were at $70 per barrel at 0558 GMT, up 13 cents from their last close, while U.S. West Texas Intermediate (WTI) crude futures were at 64.53 dollars a barrel, up 23 cents.
Both benchmarks last week reached levels not seen since December 2014, with Brent touching 70.05 dollars a barrel and WTI reaching as high as 64.77 dollars.
ANZ bank said on Monay that oil prices had recently risen on data that continued to show that the market was tightening.
Oil markets had been well supported by production cuts led by the Organisation of the Petroleum Exporting Countries (OPEC) and Russia, which were aimed at propping up crude prices.
The cuts started in January last year and were set to last through 2018, and coincided with healthy demand growth, pushing up crude prices by more than 13 per cent since early December.
But other factors, including political risk, also contributed.
“Tighter fundamentals are (the) main driver to the rally in prices, but geopolitical risk and currency moves along with speculative money in tandem have exacerbated the move”, U.S. bank JPMorgan said in a note.
Attracted by tighter supplies and strong consumption, financial investors have raised their net long U.S. crude futures positions, which would profit from higher prices, to a new record, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.
U.S. energy companies added 10 oilrigs in the week to January 12, taking the number to 752, energy service firm Baker Hughes said on Friday.
That was the biggest increase since June 2017. ANZ bank said the jump came “as shale producers quickly reacted to the strong rise in prices in 2018”.
The picture was similar in Canada where energy firms almost doubled the number of rigs drilling for oil last week to 185, the highest level in 10 months.
The high prices for crude, which is the most important feedstock in the petroleum industry, have also crimped profit margins for oil refiners, resulting in a decline in new crude orders.
Experts said the battle between OPEC and shale oil producers can be characterized as a two-round fight.
According to a source, ‘‘In the first round, shale producers gained market share and the price of crude crashed. In the second, OPEC curbed output as shale producers adapted to the lower prices.
‘‘The approach of OPEC and its allies for the coming year is clear. Brent crude has just risen above $70 per barrel, apparently confirming the success of OPEC’s plan. Production cuts have been extended until the end of 2018, and excess inventories are being drawn down. But as usual, demand in the first half of the year looks to be relatively weak, meaning any reduction in inventories will have to come in the second half.
‘‘The reality, especially if prices exceed the $70 mark, is that the fundamental supply-demand balance does not support OPEC’s optimism. Even if it did, transitioning away from supply cuts is not going to be smooth, with growth in demand likely to weaken throughout 2018. Some Russian companies seem to be itching to part ways with OPEC even though Russian Energy Minister Alexander Novak said he doesn’t see “balance” being achieved until the third or fourth quarters of next year, adding that the deal to curb supplies could be extended again, to beyond the end of 2018’’.
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