Oil traded near the highest in three years as optimism on the global economy, cold weather and political unrest bolstered a market that’s finally shaking off a prolonged surplus.
Crude is having its best start to a year since 2012, hitting $62 a barrel in New York. Swollen inventories in the U.S. are declining and could shrink further as winter storms boost demand for heating fuel, while a strong economy underpins consumption. OPEC is continuing its fight against a global glut, while street protests are stoking concern over the stability of the group’s third-biggest producer, Iran.
Oil has risen for two years running as the Organization of Petroleum Exporting Countries and Russia led a coalition of oil producers in cutting output. Prices have also been boosted by stoppages at pipelines in the U.K. and Libya. However, they are now at levels that are expected to help U.S. shale producers ramp up drilling, unlocking more crude and undermining OPEC’s efforts.
“The year has started very, very well for OPEC,” Amrita Sen, chief oil analyst at consultants Energy Aspects Ltd., said in a Bloomberg television interview. “The inventory overhang, for all intents and purposes has drawn down. There’s not that much really left.”
West Texas Intermediate for February delivery was at $61.67 a barrel on the New York Mercantile Exchange, up 4 cents, at 8:56 a.m. Total volume traded was about 1 percent above the 100-day average. Prices closed at $61.63 on Wednesday, the highest since December 2014.
Brent for March settlement fell 13 cents to $67.71 a barrel on the London-based ICE Futures Europe exchange after climbing 1.9 percent Wednesday. The global benchmark crude traded at a premium of $6.17 to March WTI.
The gains have been amplified by “the freezing polar vortex hitting the U.S., firing up heating demand, and spurring concern about a potential impact on oil production and trade,” said Jens Naervig Pedersen, an analyst at Danske Bank A/S in Copenhagen.
Nonetheless, the rally is fanning speculation that U.S. production is poised for another boom.
“We may soon see an end to the rally because prices at this level will only make U.S. drillers boost production,” said Will Yun, a commodities analyst at Hyundai Futures Corp.
The U.S. rig count, which held steady at the end of December, will “substantially increase” with crude prices between $61 and $65 a barrel, according to 42 percent of industry executives surveyed by the Dallas Federal Reserve last month. An additional 31 percent would increase investment when prices top $66, the survey found.
U.S. crude inventories slid by 4.99 million barrels last week, the American Petroleum Institute was said to report. Government data Thursday is forecast by analysts to show supplies fell by 4.7 million barrels, which would be a seventh weekly decrease. OPEC’s 14 members pumped 32.47 million barrels a day in December, according to a Bloomberg survey of analysts, oil companies and ship-tracking data. Iraq exported near-record levels of oil from the south in December as the federal government seeks to make up for production disruptions after territorial disputes in the country’s north.