Brent price hits three-year highs

Brent price hits three-year highs

Oil prices held firm on Friday, with Brent crude up by more than 10 percent from its December lows on the back of political tensions in OPEC-member Iran and a tightening USA market.

OPEC estimates that total stocks were around 137 million barrels higher than the five-year average in October, down by around half since May (“Monthly Oil Market Report”, OPEC, December 2017). U.S. West Texas Intermediate (WTI) crude futures traded broadly flat at around $60.40 a barrel by 1425 GMT after hitting $60.74 earlier in the day, their highest since June 2015.

While OPEC producers have made a decision to roll over the production cuts through the end of 2018, non-OPEC supply will increase more than previously expected, and total supply growth could exceed demand growth next year, the International Energy Agency (IEA) said in December's Monthly Oil Market Report.

According to the report, E&P companies would be aiming for profitable growth within existing oil acreage and cash flow, with improvement favoring companies with the greatest exposure to the best acreage and producers in the Permian Basin leading the way.

Oil is extending gains after climbing more than 12 percent previous year as the Organization of Petroleum Exporting Countries and its allies cut output to trim a global glut.

Lee Wild, head of equity strategy at Interactive Investor said markets were pricing in an outside chance that domestic tension in Iran could threaten supply.

"There is enough support for prices with the cold in the U.S. and the geopolitical factor", said Olivier Jakob, oil analyst at Petromatrix.

"As such, we expect supply to increase this year and the market to only fall into a small deficit by end-2018".

Positive global equity markets amid strong data from leading economies including the United States, Japan and Germany also boosted sentiment.

Meanwhile, the U.S. has largely managed to ride out the sharp fall in the price of oil over the past three years after Opec, led by Saudi Arabia, launched a price war in 2015.

In the past, waning compliance as oil prices rallied has reduced the effectiveness of OPEC accords.

"With that partially offsetting production cuts by OPEC and Russian Federation, the market will have to get confirmation that global inventories will keep coming down", Gene McGillian, a market research manager at Tradition Energy in Stamford, Connecticut, told Bloomberg.

Barrels of refined oil and lubricant additives sit on shelves in the storage yard at Rock Oil Ltd.'s factory in Warrington, U.K., on Monday, March 13, 2017.

The spurt in oil prices is definitely not good news for India, which imports over 80% of its crude requirements.

While there is a risk they may take profits after recent gains, potentially pressuring the market if funds sell out of positions, there are reasons to suspect they will not be easily dislodged.

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