Oil prices continued to climb to fresh three year highs Wednesday, boosted by declining U.S. crude stockpiles and ongoing geopolitical risk.
U.S. crude futures rose 61 cents, or 0.97%, to $63.57 a barrel on the New York Mercantile Exchange -- the highest settlement since Dec. 9, 2014. Brent, the global benchmark, rose 38 cents, or 0.55%, to $69.20 a barrel in ICE Futures Europe.
Prices have been rallying as potential global supply disruptions and rosy demand projections buoy the market.
Prices initially pulled back after the U.S. Energy Information Administration reported that U.S. crude stockpiles fell by 4.9 million barrels last week. That is the eighth consecutive weekly decline, but it fell short of the 11.2 million barrel decrease reported Tuesday by the American Petroleum Institute, an industry group.
In addition, gasoline and diesel stockpiles grew by 4.1 million barrels and 4.3 million barrels, respectively.
Still, prices resumed their upward trajectory, as investors focused on a drop in the amount of oil at the main storage hub in Oklahoma and a decline in U.S. oil production. U.S. producers slowed down, cutting output by 290,000 barrels a day last week. Total stockpiles of commercial crude and petroleum fell 5.5 million barrels, dropping to the lowest level since June 2015.
"This market does seem to be pretty well supported," said John Saucer, vice president of research and analysis at Mobius Risk Group.
At the same time, oil market observers are looking this week to see whether President Donald Trump extends U.S. sanctions relief to Iran as part of the 2015 international agreement to curb the Islamic Republic's nuclear program. If the U.S. were to reinstate economic sanctions, it could hinder Iran's oil exports, tightening global supply.
"The fundamental factor right now is declining oil inventory and rising geopolitical risk with Iranian sanctions taking oil off the market specifically," said Rob Thummel, portfolio manager at Tortoise Capital Advisors. "That is the biggest thing right now the market is dealing with."
But some said the recent rally may be vulnerable to a correction.
"Overall, the market is focused on the oil-positive news," said Ole Hansen, head of commodity strategy at Saxo Bank. But Mr. Hansen cautioned that the market will "at some point find a wall," suggesting crude prices could soon stagnate.
In its monthly short-term energy outlook Tuesday, the EIA increased its estimate for world oil demand growth by 100,000 barrels a day while it boosted its forecast for supply outside the Organization of the Petroleum Exporting Countries by 300,000 barrels a day -- mainly the result of U.S. shale production.
The agency now expects U.S. crude production to increase to 10.3 million barrels a day this year, up from a previous estimate of 10 million barrels a day.
Oil bulls, however, "might have taken heart" because the EIA "does not foresee an increase in global stocks assuming some kind of OPEC discipline," according to Tamas Varga, an analyst at brokerage PVM Oil Associates Ltd.
OPEC and 10 members outside the cartel, including Russia, agreed late last year to extend an accord to cut global crude production by nearly 2% through the end of this year. The agreement was first reached in late 2016 in an effort to rein in a global supply glut and boost prices.
Gasoline futures fell 0.35 cent, or 0.19%, to $1.8327 a gallon. Diesel futures rose 1.45 cents, or 0.7%, to $2.0807 a gallon.
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(END) Dow Jones Newswires
January 10, 2018 16:19 ET (21:19 GMT)