US crude closes above $60 for first time in 2½ years, settling at $60.42 and ending the year up 12.5%

Key Points
  • U.S. West Texas Intermediate crude jumps back above $60 per barrel after weekly American output dip and stockpiles drop.
  • Ongoing production cuts by OPEC and Russia support Brent.
  • Strong Chinese demand further supports oil prices.
An oil pump jack in Gonzales, Texas.
Getty Images

U.S. oil prices rose above $60 a barrel on the final trading day of the year and hit their highest since mid-2015, as an unexpected fall in American output and a decline in commercial crude inventories stoked buying in generally thin trading.

International benchmark Brent crude futures also rose, supported by ongoing supply cuts by top producers OPEC and Russia as well as strong demand from China.

Oil prices closed 2017 with strong gains on signs the global glut that has dogged the market since 2014 is shrinking. Brent is up more than 17 percent since the beginning of the year and U.S. West Texas Intermediate is 12.5 percent higher.

U.S. West Texas Intermediate (WTI) crude futures rose 58, or 1 percent, to $60.42 a barrel, marking its best closing price since June 2015.

Brent crude futures, the international benchmark, were also up, rising 76 cents or 1.2 percent to $66.92 a barrel by 2:25 p.m. ET (1925 GMT). Brent broke through $67 earlier this week for the first time since May 2015.

Top oil analyst discusses 2018 outlook for crude, as well as his top picks in the space
Top oil analyst discusses 2018 outlook for crude, as well as his top picks in the space

WTI prices were supported by data from the U.S. Energy Information Administration late on Thursday showing a modest drop last week in domestic oil production to 9.75 million barrels per day (bpd) from 9.79 million bpd the previous week.

Earlier this year, oil prices slumped on concerns that rising crude production from Nigeria, Libya and elsewhere would undermine output cuts led by the Organization of the Petroleum Exporting Countries and Russia. Prices have rallied nearly 50 percent since the middle of the year on robust demand and strong compliance with the production limits.

"That trend is likely to continue into 2018 and worldwide oil inventories will continue their decline," said Andrew Lipow, president of Lipow Oil Associates in Houston.

Lipow said he expected U.S. crude prices to creep up to around $63 a barrel by the end of next year, while Brent would remain around $67 a barrel as U.S. oil exports rise to record levels.

U.S. output is up almost 16 percent since mid-2016, but still shy of 10 million bpd, which would trail only top exporter Saudi Arabia and top producer Russia.

The number of oil rigs operating in U.S. fields remain unchanged for a second week in a row, according to oilfield services firm Baker Hughes. There were 747 oil rigs operating in the latest week, a roughly 42 percent jump from the end of last year.

Analysts expect U.S. production to top 10 million bpd in the next few weeks and to keep growing, limiting efforts by other producers to cap global supplies.

RBC:  Geopolitics could play a big factor in oil's direction in 2018
RBC: Geopolitics could play a big factor in oil's direction in 2018

"The U.S. shale impact is now encroaching on uncharted territory," analysts at RBC Capital Markets wrote this month, saying it had "redrawn the global crude flow map."

WTI prices were further boosted by an EIA report of a 4.6 million barrel weekly drop in U.S. commercial crude storage levels. Inventories are down by almost 20 percent from historic highs last March, and well below this time last year or in 2015.

A year of cuts

In international markets, China has issued crude oil import quotas totaling 121.32 million tons for 44 companies in its first batch of allowances for 2018.

China's imports at around 8.5 million bpd, already the world's biggest, are expected to hit another record in 2018 as new refining capacity is brought online and Beijing allows more independent refiners to import crude.

Pipeline outages in Libya and the North Sea have supported oil prices, although both disruptions are expected to be resolved by early January.

The Forties pipeline was already pumping close to normal levels, trading sources said.

— CNBC's Tom DiChristopher contributed to this report.