Oil Prices Hit Three-Year Highs on Growth, Geopolitics
Oil prices traded near three-year highs Tuesday, as geopolitical risk and confidence in global growth continued to buoy markets.
Light, sweet crude for February delivery rose 25 cents, or 0.4%, to $61.98 a barrel on the New York Mercantile Exchange, hovering just under the highest close since 2015 reached last week. Brent, the global benchmark, edged up 8 cents, or 0.1%, to $67.86 a barrel.
Traders and oil market observers are waiting to see whether President Donald Trump on Wednesday extends U.S. sanctions relief to Iran as part of the 2015 international agreement to curb the Islamic Republic's nuclear program. Reinstating economic sanctions could limit Iran's oil exports.
"The potential for new sanctions, which could restrict [crude] supply" is supporting prices, said Geordie Wilkes, a research analyst at brokerage Sucden Financial.
Mr. Trump's decision comes on the heels of antigovernment protests in Iran last week, which also boosted the price of crude.
But Mr. Wilkes said he expects the market to consolidate somewhat in the short-term as traders reassess some of the recent factors driving up prices, including the situation in Iran, a drawdown in U.S. crude stocks and strong seasonal demand because of the cold winter in the U.S.
Market bulls have also been buttressed by the Organization of the Petroleum Exporting Countries' continued compliance with a deal to cut crude production. OPEC and 10 members outside the cartel agreed late last year to extend an accord to hold down crude output by nearly 2% through the end of this year.
The agreement, which was implemented at the start of 2017, was meant to rein in the global supply glut and raise prices. The price of Brent has risen roughly nearly 30% over the past year.
"The fact that the crude benchmarks are establishing highest levels since spring of 2015 on very little fresh fundamental input continues to suggest a strong market underpinning," said Jim Ritterbusch, president of Ritterbusch & Associates, in a Tuesday note.
Adding to the positive sentiment, analysts expect global economic growth to lead to higher demand for oil.
Standard Chartered expects oil demand growth to outpace supply growth from non-OPEC countries in both 2018 and 2019, continuing to be the main supporter of prices, analysts wrote Tuesday.
"In view of sharply falling U.S. crude stocks and record-high compliance with the production cuts by OPEC, market participants are convinced that the market is continuing to tighten," according to analysts at Commerzbank.
Analysts are looking ahead to the release of the U.S. Energy Information Administration's monthly short-term energy outlook report, which will provide forecasts on U.S. output for this year. On Wednesday, the EIA will release its weekly data on U.S. petroleum inventories.
Gasoline futures gained 1.2% to $1.8140 a gallon and diesel futures fell 0.1% to $2.0436 a gallon.
Write to Christopher Alessi at christopher.alessi@wsj.com and Stephanie Yang at stephanie.yang@wsj.com
Oil prices closed at fresh three-year highs Tuesday, as geopolitical risk and confidence in global growth continued to buoy markets.
Light, sweet crude for February delivery rose $1.23, or 2%, to $62.96 a barrel on the New York Mercantile Exchange, the highest settle value since December 2014. Brent, the global benchmark, also closed at a three-year high, up $1.04, or 1.5%, to $68.82 a barrel.
The market has rallied in recent weeks as investors bet on an increasingly tighter market, aided by data showing declining U.S. stockpiles and threats to supply from major producers such as Iran and Venezuela.
Most recently, traders and oil market observers are waiting to see whether President Donald Trump on Wednesday extends U.S. sanctions relief to Iran as part of the 2015 international agreement to curb the Islamic Republic's nuclear program. Reinstating economic sanctions could limit Iran's oil exports.
"The potential for new sanctions, which could restrict [crude] supply" is supporting prices, said Geordie Wilkes, a research analyst at brokerage Sucden Financial.
Mr. Trump's decision comes on the heels of antigovernment protests in Iran last week, which also boosted the price of crude.
"The fact that the crude benchmarks are establishing highest levels since spring of 2015 on very little fresh fundamental input continues to suggest a strong market underpinning," said Jim Ritterbusch, president of Ritterbusch & Associates, in a Tuesday note.
According to the U.S. Energy Information Administration, global petroleum and other liquid fuel inventories fell on average for the first year since 2013 last year.
Traders and analysts surveyed by The Wall Street Journal expect government data due Wednesday to show crude stockpiles declined on average by 2.5 million barrels in the week ended Jan. 5, which would mark the eighth consecutive week of inventory draws if estimates are accurate.
The American Petroleum Institute, an industry group, said late Tuesday that its own data for the week showed an 11.2-million-barrel decrease in crude supplies, a 4.3-million-barrel rise in gasoline stocks and a 4.7-million-barrel increase in distillate inventories, according to a market participant.
"In view of sharply falling U.S. crude stocks and record-high compliance with the production cuts by OPEC, market participants are convinced that the market is continuing to tighten," according to analysts at Commerzbank.
Adding to the positive sentiment, analysts expect global economic growth to lead to higher demand for oil.
Standard Chartered expects oil demand growth to outpace supply growth from non-OPEC countries in both 2018 and 2019, continuing to be the main supporter of prices, analysts wrote Tuesday.
Market bulls have also been buttressed by the Organization of the Petroleum Exporting Countries' continued compliance with a deal to cut crude production. OPEC and 10 members outside the cartel agreed late last year to extend an accord to hold down crude output by nearly 2% through the end of this year.
The agreement, which was implemented at the start of 2017, was meant to rein in the global supply glut and raise prices. The price of Brent has risen roughly nearly 30% over the past year.
However, some analysts believe market participants are getting to optimistic, especially given expectations for an increase in U.S. shale production.
The EIA forecast that U.S. crude oil production will average 10.3 million barrels per day in 2018 and 10.8 million barrels per day in 2019, breaking historical records for annual average production. In its Short-Term Energy Outlook, released Tuesday, the agency said it expects U.S. production to break above 11 million barrels per day in November 2019.
Gasoline futures gained 2.5% to $1.8362 a gallon and diesel futures rose 1% to $2.0662 a gallon.
Write to Stephanie Yang at stephanie.yang@wsj.com and Christopher Alessi at christopher.alessi@wsj.com
(END) Dow Jones Newswires
January 09, 2018 17:07 ET (22:07 GMT)