JANUARY 4, 2018 – Oil climbed from the highest in three years as optimism on the global economy, cold weather and political unrest bolstered a market that’s finally shaking off a prolonged surplus.
Crude is having its best start to a year since 2012, after hitting $62 a barrel in New York. Swollen inventories in the U.S. are declining and could shrink further as winter storms boost demand for heating fuel, while a strong economy underpins consumption. OPEC is continuing its fight against a global glut, while street protests are stoking concern over the stability of the group’s third-biggest producer, Iran.
“The rise in oil prices has mainly been caused by the freezing polar vortex hitting the U.S., firing up heating demand, and spurring concern about a potential impact on oil production and trade,” said Jens Naervig Pedersen, an analyst at Danske Bank A/S in Copenhagen.
Oil has risen for two years running as the Organization of Petroleum Exporting Countries and Russia led a coalition of oil producers in cutting output. Prices have also been boosted by stoppages at pipelines in the U.K. and Libya. However, they are now at levels that are expected to help U.S. shale producers ramp up drilling, unlocking more crude and undermining OPEC’s efforts.
“Supply disruptions in the North Sea and Libya, falling U.S. stockpiles, and conflict in Iran have underpinned the momentum,” said Will Yun, a commodities analyst at Hyundai Futures Corp. “We may soon see an end to the rally because prices at this level will only make U.S. drillers boost production.”
West Texas Intermediate for February delivery was at $61.86 a barrel on the New York Mercantile Exchange, up 23 cents, at 10:05 a.m. in London. Total volume traded was about 32 percent above the 100-day average. Prices closed at $61.63 on Wednesday, the highest since December 2014.
Brent for March settlement added 2 cents to $67.86 a barrel on the London-based ICE Futures Europe exchange after climbing 1.9 percent Wednesday. The global benchmark crude traded at a premium of $6.16 to March WTI.
The U.S. rig count, which held steady at the end of December, will “substantially increase” with crude prices between $61 and $65 a barrel, according to 42 percent of industry executives surveyed by the Dallas Federal Reserve last month. An additional 31 percent would increase investment when prices top $66, the survey found.
