Brent crude oil hit $60 a barrel on Friday for the first time in more than two years, in the latest sign the market is tightening after a three-year glut.
The international oil benchmark hit a high of $60.53 a barrel in afternoon trading in London, taking gains to more than 35 per cent since it slumped to a low for the year of $45 a barrel in June.
Oil has been boosted by strong demand as the world’s economy expands at its fastest in years, helped along by prices that remain almost half the level they were in mid-2014.
Opec’s output cuts, made in conjunction with Russia and other large producers, have also served to tighten up the market since the started on January 1 with the $60-a-barrel level believed to be a key target for the cartel’s de facto leader, Saudi Arabia.
“A solid global demand backdrop coupled with Opec-led cuts is eating into the oil glut,” said Stephen Brennock at PVM oil brokerage in London. “Commercial oil inventories are trending lower and the surplus above the five-year average has been halved to around 160m barrels since the start of the year. Injecting a further dose of bullish impetus is the constant stream of price-supportive comments from Opec officials.”
Opec and Russian officials have both indicated in recent weeks that they favour extending their output cuts until at least late 2018 when they meet in Vienna next month, damping fears they could return to flood the market as prices rise.
Traders and industry executives have also pointed to rising geopolitical risks in the market with Iraq’s move to reclaim disputed oilfields and territory from the Kurdistan Regional Government threatening flows from the north of the country over the past two weeks.
Still, the biggest question mark for the oil industry remains the US shale sector, which did so much to create the glut after expanding rapidly in the first few years of this decade.
Shale output has started growing again in 2017, boosted by the recovery in prices, though some see signs it may not grow as fast as during the $100-oil era with companies becoming more focused on returns as well as boosting production.
The rally is helping the performance of the wider industry. Royal Dutch Shell’s share price rose 1.5 per cent on Friday to the highest since January with BP gaining a similar amount.
ExxonMobil, the world’s largest listed oil company, reported earnings above analysts’ expectations on Friday with profits from its production segment more than doubling from the same period a year ago to $1.57bn.
Some analysts and traders remain doubtful that crude will be able to hold above $60 a barrel and settle into a higher range, however, believing supplies — and the potential for shale output to respond — may keep prices capped.
Source: www.ft.com
