Oil Prices Steady on Wednesday but Below 3-year highs

Oil prices reached stable levels on Wednesday but were below its three-year highs, which were hit last session. The rising US fuel production and inventories impeded the run on the bullish oil markets.

Brent crude futures stayed at $73.89 per barrel, 3 cents higher from their last session. However, this was below the November 2014 high of $75.47 a barrel, which was also reached the previous session.

US West Texas Intermediate futures were steady at $67. 76 per barrel, but lower than the late- 2014 highs of $69.56 per barrel, which was also hit in the earlier part of April.

Traders attributed the price dips to the profit-taking following Tuesday’s highs. On the other hand, a huge number of analysts suggest that the oversupply period that started in 2014 has already gone thanks to supply disruptions and stronger demands.

The bullish trend has been fueled by the supply cut led by the Organization of Petroleum Exporting Countries (OPEC) started in 2017 in an attempt to spur demand and boost the oil market. Aside from that, the trend was also attributed to the political risk to supplies in the Middle East, Africa, and Venezuela.

Due to the tighter condition of the market, the forward curve for Brent now hovers above $70 per barrel until the end of this year. Prices remain above $60 per barrel through the year 2020.

“Market sentiment is turning increasingly bullish toward the commodity,” according to Lukman Otunuga, who is a research analyst at future FXTM, a future brokerage.

In the same breath, Otunga said added that “the sustainability of the rally is a concern” since it was largely supported by the political tensions in the Middle East.

“With rising production from US shale still a key market theme that continues to weigh on oil prices, it will be interesting to see how much oil appreciates before bears enter the scene,” he added.

It is very likely that American drillers will pursue the increased output since they are apparently able to hedge themselves profitably in the near future. Most US producers are now at profitable prices below $40 per barrel. In addition, the forward curve is also significantly higher than that for the next years to come.

US crude inventories increased more than 1.1 million barrels in the week through April 20 to 429.1 million based on the report by the American Petroleum Institute on Tuesday.

Market participants are currently awaiting the official weekly US fuel inventory and crude production data that will be published by the Energy Information Administration on Wednesday.

“Should a larger than expected build occur in the US inventories, we can expect a swing in prices as markets have been shown to be extremely sensitive to weekly US petroleum data,” said Singapore-based Philip Futures in a note.

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