Oil prices have risen to levels not seen since June 2015, as unexpectedly strong global growth has driven demand and helped soak up a supply glut that has plagued the market for years.
West Texas Intermediate crude is poised to top $60 a barrel, up more than 36% from a low in June. The milestone would mark a drastic shift in sentiment compared with five months ago, when prices languished in a bear market despite efforts by global producers to limit output. Analysts in October boosted their price forecasts for the first time in six months.
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Oil prices have been depressed for more than three years -- prices are still down more than 45% from their 2014 high. They were on track for a second day of declines Tuesday, dropping 0.2 to $57.98.
But unlike previous years, when oil often dragged down other financial markets, resurgent global economic growth is pushing stock markets to record highs and lifting oil.
Nearly half of the 35 major equity indexes representing the world's biggest stock markets by value have reached highs this year. Also, strong factory activity in China has boosted copper -- a widely watched barometer of global economic health -- to near a three-year high.
"The broader global economic picture has been one that continues to strengthen," said Michael Cohen, head of energy commodities research at Barclays. "There are only a very small number of countries that are not showing positive global growth."
Traders say the rise toward $60 isn't guaranteed. Uncertainty about whether the Organization of the Petroleum Exporting Countries will agree to continue holding crude off the market when the group meets Thursday has weighed on prices recently.
The International Energy Agency expects oil demand to have increased by 1.5 million barrels a day this year and 1.3 million barrels a day in 2018.
Some analysts are even more optimistic. Goldman Sachs Group Inc. said in a research note Nov. 9 that rising consumption, especially in India and China, prompted the bank to boost its forecast for global demand -- Goldman analysts now expect it will increase by 1.7 million barrels a day this year from 2016.
"We are more optimistic on oil demand growth given the ongoing solid global growth momentum and the still relatively low oil prices," they wrote in a note Monday, reiterating their forecast.
Demand was a question mark heading into this year. Low prices in 2015 and 2016 fueled "scorching" increases in consumption and some weren't sure whether that would continue, said Doug Terreson, head of energy research at Evercore ISI.
"But with oil prices low and the global economy strengthening, we had another great demand year," he said.
Evercore expects that demand rose by 1.6 million barrels a day in 2017, and Mr. Terreson said robust demand to continue, helping to drive prices higher next year.
Increased demand has pulled stockpiles of crude oil out of storage this year, even as U.S. shale producers have ramped up output and pushed weekly production to record highs. Last month, crude stockpiles fell to the lowest level since the beginning of 2016, according to the U.S. Energy Information Administration.
"So far it has been surprising to many players in the marketplace how quickly inventories in the United States have adjusted," said Bart Melek, head of commodity strategy at TD Securities.
Global stockpiles have also steadily declined this year, according to data tracked by the IEA. In recent months, increased geopolitical tensions in countries such as Saudi Arabia and Iraq sent oil prices higher, which analysts noted as a sign of a tighter market supply.
Still, the specter of higher U.S. production continues to worry some investors. Jack Ablin, chief investment officer at BMO Private Bank, said restraint by OPEC -- especially Saudi Arabia -- underpinned oil's turnaround this year. But $60 a barrel is likely the upper bound for U.S. crude prices, he said.
"At $60 we would start to see the rig count really ramp up," Mr. Ablin said. "I have a feeling that what Saudi Arabia wants more than high prices would be stable prices."
Oil's recent rally may also be threatened by a meeting this week between OPEC and other global producers including Russia. On Thursday, the group is expected to decide whether or not to extend a deal struck last year to curb production, as part of their efforts to reduce an overhang in crude supply and bring stockpiles back to the average level of the past five years.
While most traders are anticipating an extension to the deal, which is set to expire in March 2018, many said the market is vulnerable to a reversal if the announcement disappoints investors.
Net long positions held by speculative investors recently reached an all-time high in the global Brent market, according to data from Intercontinental Exchange. Net bullish bets on U.S. oil futures also hovered near record highs ahead of the Thursday meeting.
While investors have become more optimistic about the possibility of supply cuts, global demand was the surprise factor that pushed oil prices higher than expected, said Darwei Kung, portfolio manager of the $2.7 billion Deutsche Enhanced Commodity Strategy Fund.
"It's outside of the boundaries that we had anticipated earlier this year," said Mr. Kung, whose firm raised U.S. oil forecasts last week to $58 a barrel over the next 12 months. "Demand was stronger than we expected."
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(END) Dow Jones Newswires
November 28, 2017 10:35 ET (15:35 GMT)