Energy

US crude hits 3-year high above $68 on report of falling stockpiles, global supply risks

Key Points
  • Oil prices extended gains on Wednesday, lifted by a reported decline in U.S. crude inventories and the risk of supply disruptions.
  • U.S. crude touched a fresh high going back to December 2014.
  • A committee tasked with monitoring OPEC's supply-cutting deal with other countries led by Russia meets in Saudi Arabia on Friday.
Oil pumpjacks in silhouette at sunset.

Oil prices extended gains on Wednesday, lifted by a reported decline in U.S. crude inventories and the risk of supply disruptions.

U.S. West Texas Intermediate crude futures hit a fresh high going back to December 2014 at $68.08 a barrel. The contract was last up $1.38, or 2.1 percent, at $67.90.

oil futures rose $1.21, or 1.7 percent, to $72.79 a barrel by 9:44 a.m. ET (1344 GMT), but have yet to match last week's three-year high of $73.09.

In the United States, crude inventories fell by 1 million barrels last week, to 428 million barrels, according to a weekly report by the American Petroleum Institute (API) on Tuesday.

Official weekly U.S. data will be published by the Energy Information Administration (EIA) on Wednesday.

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"Yesterday evening saw the API report a surprising decrease in U.S. crude oil stocks and a reduction in oil product stocks that was sharper than anticipated," Commerzbank oil analyst Carsten Fritsch said in a note.

OPEC's ministerial committee tasked with monitoring the group's supply-cutting deal with non-OPEC countries, led by Russia, meets in the Saudi city of Jeddah on Friday.

The Organization of the Petroleum Exporting Countries and 10 rival producers have restrained output by a joint 1.8 million barrels per day since January 2017 and pledged to do so until the end of this year.

"Despite an oil price of over $70 per barrel and the fact that the oversupply has been eliminated, a phase-out of the production cuts will not be on the agenda," Fritsch said.

Oil has been supported by the perception among investors that tensions in the Middle East could lead to supply disruptions, including renewed U.S. sanctions against Iran, as well as falling output in crisis-hit Venezuela.

"Oil prices are holding near three-year highs (reached earlier in April) for the time being, and with inventories back in line with normal levels, the supply glut of the last few years appears to be over," said William O'Loughlin, investment analyst at Australia's Rivkin Securities.

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Dutch bank ING said in a note to clients that Brent had risen back above $70 in April "due to geopolitical risks along with some fundamentally bullish developments in the market".

It raised its average 2018 price forecast for Brent to $66.50 a barrel from $60.25, and its 2018 WTI forecast to $62.50 from $57.75.

For next year, however, ING expects lower prices due to rising U.S. crude output, which has jumped by a quarter since mid-2016.

The structure of the Brent and WTI forward price curve also points to a tighter market in 2018.

The premium for June 2018 over June 2019 prices for Brent and WTI is $5.5 and $6 per barrel, respectively, a market structure known as backwardation in which it is attractive for producers and traders to sell crude immediately instead of keeping it in storage for later sale.