Oil soars to 3-year high, as United States crude stockpiles drop

20 April, 2018, 01:40 | Author: Lora Ball
  • Crude prices soar on decline in US inventories

Investors are eyeing the $70 level on USA crude, but said that would likely face resistance, particularly as the speed and magnitude of the recent rally would augur for selling pressure before long. While demand has yet to catch up to elevated supplies, rebounding economies in Europe and steady economic growth in the US could prompt more upside for oil this year. U.S. West Texas Intermediate crude futures CLc1 gained $1.95, or 2.9 percent, to settle at $68.47 a barrel, their highest since late 2014. WTI has gained almost 8 percent in the last eight days of trading.

The North American crude oil benchmark, West Texas Intermediate, crossed above $69 per barrel Wednesday night, its highest price point since December 2, 2014.

In the US, total inventories of crude and refined products, excluding strategic petroleum reserves, fell by 10.6 MMbbl last week to the lowest level since March 2015, according to Energy Information Administration data.

Stockpiles of gasoline also dropped by 3 million barrels, while distillates fuels including diesel decline by 3.1 million barrels.

“We continue to see extremely strong compliance” by OPEC nations to self-imposed supply limits, said Nick Holmes, an analyst at Tortoise in Leawood, Kansas, which manages $16 billion in energy-related assets. Total volume traded was 30% above the 100-day average.

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Crude futures were already higher ahead of the release after the American Petroleum Institute reported a 1-million-barrels drop on Tuesday afternoon.

Opec, which has been curbing output by 1.8 million barrels a day since January 2017, will need to "over-tighten the market rather than under-tighten the market", to keep USA shale from flooding the sector, said Michael Tran, managing director, global energy strategy at RBC Capital Markets in an interview with The National in Abu Dhabi. "But OPEC is unlikely to make any changes in June, maybe by the end of the year".

Traders are also watching a technical meeting between key Opec members in Jeddah this week where they will be reviewing the progress of the oil supply cuts deal. Saudi Arabia ran budget deficits that were unthinkable before 2014, and its breakeven budget price is said to be upwards of $80 oil. The most famous example of OPEC's ability to affect the worldwide price and supply of oil was the crisis caused by the embargo of 1973.

Hussein Sayed, chief market strategist at FXTM, said: "While the elimination of oversupply has been a critical factor pushing oil prices, I still believe there's a significant risk premium being priced in, specifically the fear of supply disruption from the Middle East and possible renewed sanctions on Russian Federation and Iran".

Oil prices surged to top $74 a barrel today, the highest price recorded since the end of 2014, on a bullish view from top exporter Saudi Arabia. US President Donald Trump's decision on whether or not to renege on the Iran nuclear deal next month will be particularly closely watched.

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