Oil prices rose in early trading Thursday with Brent crude hitting $71.20/barrel. As trading continued, the benchmark eased back but stayed above $70/barrel.
Brent oil prices ease back after hitting $71.20/barrel early in session
Early in trading Thursday, Brent oil prices hit $71.20/barrel for the first time since 2014, mostly due to tightening supply on OPEC production cuts, declines in US crude stocks and a weaker greenback.
But as the session continued, prices eased from December 2014 highs, and by 2:08 p.m. EST, Brent crude was up 47 cents to $70.49/barrel. US WTI rose 34 cents to $65.95/barrel after hitting a session high of $66.44, also the highest since December 2014.
The Canadian Crude Index was down 11 cents to $38.96.
“This latest pop is due to the dollar trade,” Gene McGillian told Reuters.
The US dollar hit its lowest since December 2014 after US Treasury Secretary Steven Mnuchin said a weaker dollar was “good for us”. The declining greenback makes dollar-dominated commodities cheaper against other currencies and often supports oil prices.
“The depreciation of the U.S. dollar is also allowing oil prices to make further gains,” Carsten Fritsch, analyst at Commerzbank told Reuters. “Almost every commodity class is being driven up by this extended dollar fall.”
As well, the OPEC supply cut agreement which has reduced total production by a collection of cartel and non-cartel nations by 1.8 million barrels per day (b/d) is credited with tightening the oil market and boosting prices. A deepening political and social crisis in Venezuela and declining US crude inventories also impacted the value of crude.
“The continuous fall in U.S. oil inventories and the prolonged weakness in the U.S. dollar have done the trick,” Tamas Varga of broker PVM told Reuters.
Participants in the OPEC cuts have agreed to continue reducing their production to the end of 2018 and earlier in the week, Saudi Arabia’s Energy Minister Khalid al-Falih hinted these self-imposed cutbacks could go be extended past the end of this year.
“There is a readiness to continue cooperation beyond 2018… The mechanism hasn’t been determined yet, but there is a consensus to continue,” Falih told Reuters after a meeting of the joint ministerial committee in Oman last Sunday.
An economic crisis in Venezuela has left the country’s oil industry struggling to produce its crude. Venezuela holds the globe’s highest amount of proven oil reserves, but the state run oil company PDVSA has been kneecapped by years of political and social unrest and production now sits at a three-decade low.
On Wednesday, the US Energy Information Administration reported US crude stocks fell for a 10th straight week to the lowest level since February 2015.
But, rising US shale production is putting a damper on investor enthusiasm over oil prices. The EIA predicts US crude production will rise to over 10 million b/d in February, and is on the way to record highs faster than previously forecast.