Author: Anjli Raval
Posted on Financial Times | Wednesday 10th Januray, 2018
Brent crude, the international oil benchmark, rose to high of $69.31 a barrel on Wednesday, the most in almost three years, creeping closer to levels last seen in 2014 when a price crash got underway.
As supply cuts by global producers take effect and geopolitical tensions become heightened, prices have risen so far in 2018, even as anxieties swirl about the rally spurring higher levels of US shale production.
US crude marker West Texas Intermediate hit its 2014 high on Wednesday even as the US Energy Department’s statistical arm predicted crude output in the country would grow at record rates this year and would top 11m barrels a day in 2019.
Carsten Fritsch, analyst at Commerzbank, said the market was overreacting. “Oil prices are [becoming] increasingly detached from the fundamental data and risk overshooting,” he said, adding that recent data releases make it “virtually impossible for the price to react in this way”.
Although some Opec countries, whose economies have been battered in recent years, have welcomed a rise in prices, others are more concerned about a flood of US shale production. This would undermine efforts by global producers to curb output to reduce global stockpiles.
Iran’s oil minister Bijan Zanganeh said on Tuesday that some Opec members were not keen on increased prices, particularly over $60 a barrel, in the face of a resurgent US shale sector, domestic news agency Shana said.
Industry participants are again paying attention to the US response to higher prices despite companies saying they were more focused on delivering value, rather than volume, when it comes to developing oil assets.
Still, Mr Zanganeh said the rise in Brent in recent days reflected the impact of supply cuts and cold weather. “We are in winter, a season in which prices go up as demand for petroleum products goes up,” Mr Zanganeh said.
Brent crude has risen almost 4 per cent since the start of the year and nearly 10 per cent since Opec and its allies, including Russia, agreed in late November to extend a supply cuts agreement for the whole of 2018.
Even as excess stockpiles are falling, the oil market is again sensitive to supply disruptions – such as in Venezuela – and geopolitical events in crude producing countries. Rapid social and economic reforms in Saudi Arabia coupled with a more aggressive foreign policy and rising domestic tensions in Iran are among factors being monitored closely.