Oil Prices Trade near 3-year Highs, Boosted by Strong Demand

Brent crude oil prices traded near $70 a barrel on Tuesday, a level not seen since 2014’s dramatic market slump. Prices have also been boosted by production curbs in OPEC nations, as well as strong demand thanks to healthy economic growth, according to sources.

Brent crude futures slumped 30 cents, or 0.4%, to $69.96 per barrel on Tuesday from the previous day’s close. Despite the drop, traders said that Brent was well supported overall around $70 a barrel.

On Monday, Brent hit $70.37 a barrel, a December-2014 high, when markets were at the beginning of a 3 year-long slump.

US West Texas Intermediate (WTI) crude futures were at $64.47 a barrel, higher 17 cents, or 0.3% from their last settlement. WTI saw a December-2014 peak of $64.89 a barrel in early trading.

Oil is extending a two-year rebound as the Organization of Petroleum Exporting Countries and its allies trimmed production to drain a global glut. While rising prices may boost US output, Citigroup Inc, Societe Generale SA, and JPMorgan Chase & Co predicted that supply curbs may slow down from the middle of the year, despite their scheduled end in December, as the market re-balances.

The American oil and gas service company Baker Huges, a GE Company, reported that following the week ended on January 12 business week, the number of drilling rigs in the US increased by 15, or 1.6%, to 939 units. This was the strongest growth since June last year, and at the same time, the number of oil drilling rigs increased by 10 pieces, to 752 units.

“Many believe that oil prices above $60 per barrel will be self-corrected, since such a cost will contribute to a much higher level of production in the US, which will lead to an increase in supply,” said William O’Loughlin, analyst at Rivkin Securities.

Meanwhile, other US banks had already raised their oil price forecasts.

“We have updated our supply/demand balances to reflect a faster-than-expected tightening in the global oil market due to improving cyclical conditions, cold winter weather, and higher than expected OPEC compliance,” Bank of America Merrill Lynch said.

“We now see a deficit of 430,000 barrels per day in 2018 compared to 100,000 bpd prior, and thus see Brent crude oil prices averaging $64 per barrel in 2018 compared to $56 prior,” the bank said. “Our WTI projection also moves up from $52 per barrel to $60 per barrel for the same reasons.”

Morgan Stanley projected that 2018 would still see a 200,000 bpd deficit, as oil markets were 0.5 million bpd undersupplied in 2017. It expected Brent to rise to about $75 per barrel by the 3rd quarter of this year.

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