U.S. oil prices hit highest since 2015, but doubts loom over rally
U.S. oil prices hit their highest since 2015 again on Tuesday as speculators bet on further price rises amid OPEC-led production cuts and a dip in American drilling activity, though some warned the rally could run out of steam.
U.S. West Texas Intermediate (WTI) crude futures were at $62.16 a barrel at 0751 GMT – 43 cents, or 0.7 percent, above their last settlement. They earlier matched a May-2015 high of $62.56 a barrel.
Beyond equaling that 2015 high, which was a short intra-day spike, Tuesday’s peak was the strongest level for WTI since December, 2014, at the start of the oil market slump.
Brent crude futures were at $68.11 a barrel, 33 cents, or 0.5 percent, above their last close. Brent touched $68.27 last week, its highest since May, 2015.
Traders said prices were mainly being driven by speculative money being poured into crude futures on the notion of a tighter market following a year of production cuts led by the Organization of the Petroleum Exporting Countries (OPEC) and Russia, which are set to last through 2018.
“Speculators continued to increase their net long in ICE Brent … According to exchange data, speculators increased their position by 4,175 lots to leave them with a record net long of 565,459 lots,” ING bank said.
A slight dip in the amount of rigs in the United States drilling for new oil was supporting WTI, traders said.
The number of rigs drilling for oil fell by 5 to 742 in the week to Jan. 5, according to oil services firm Baker Hughes.
Despite the recent bull run, which has lifted crude prices by more than 10 percent since early December, some warn that markets are getting ahead of themselves.
The U.S. rig-count remains significantly above the low of 316 in June, 2016, and U.S. crude output is expected to break through 10 million barrels per day (bpd) soon, hitting a level that only Russia and Saudi Arabia have achieved so far.
“U.S. crude oil production is still increasing, so surely this evidences that the system is, once again, becoming even more efficient,” said Matt Stanley, a fuel broker with Freight Investor Services (FIS) in Dubai.
In Asia, the world’s biggest oil consuming region, there were also signs that despite the cuts in crude production, fuel supplies remain ample.
Enjoying good profit-margins in 2017, Asian refiners had cranked up processing to a record 23 million bpd by last October.
With profits, known in the oil industry as cracks, now down due to higher feedstock crude prices and ample fuel supplies because of last year’s processing binge, Asian refiners have started to reduce output, likely resulting in lower crude orders.
“Falling crude throughput will bring downward price pressure in Q1/Q2, as seasonally softening consumption, narrowing distillate cracks and spring maintenance lower run rates,” BMI Research said in a note.