Oil prices sit near three-year highs
Oil prices rose slightly on Monday as supply cuts by OPEC and some non-OPEC members participating in the cartel’s output reduction pact have helped tighten the market.
By 1:41 p.m., EST, Brent was trading 28 cents higher at $70.15/barrel, just shy of session high $70.19/barrel. US WTI was up 51 cents to $64.81/barrel in thin trading as the United States celebrated Martin Luther King Day.
The Canadian Crude Index was even at $41.17.
According to Reuters, Bank of America Merrill Lynch boosted its 2018 Brent price forecast to $64/barrel from $56/barrel and is now forecasting a deficit of 430,000 barrels per day of crude production compared to demand this year.
OPEC’s supply cut agreement, political unrest in some oil producing countries and rising demand are credited for the tightening oil market.
“OPEC and non-OPEC producers remain committed to production cuts at the same time world oil demand continues to increase,” Andrew Lipow, president of Lipow Oil Associates told Reuters.
“As we go through 2018 the market is also going to continue to look at geopolitical supply disruptions that could occur in Libya, Nigeria and Venezuela.”
Despite the renewed optimism in the oil markets shown by some, a number of analysts are concerned that the rally in oil prices since the beginning of the year could wane in the short term due to global refinery maintenance and rising crude production in the US.
According to Baker Hughes, US drillers added 10 rigs in the week ending Jan. 12, the biggest increase since June 2017.
US production is expected to grow by 600,000 barrels per day (b/d) in the first quarter of 2018 compared to Q1 2017, according to JBC Energy.
“From a fundamental perspective, the surge in U.S. managed money raises a clear red flag for us. We see the U.S. complex as decidedly bearish over the next two months.”
Higher production of US crude is expected “to widen to levels that will overwhelm the market”, said JBC.
The rig count increase in Canada rose by 87 to 185 last week, the highest level in 10 months.
Photo courtesy Encana.