Atheer – External Sources
Oil prices hit their highest levels since 2014 on Wednesday, as a result of ongoing production cuts led by OPEC, as well as healthy demand. Analysts have cautioned however that markets may be overheating.
According to Reuters, broad global market rally, including stocks, has also been fueling investment into crude oil futures.
U.S. West Texas Intermediate (WTI) crude futures were at $63.47 per barrel at 0405 GMT, 51 cents, or 0.81 percent, above their last settlement. Brent crude futures were at $69.19 per barrel, 37 cents, or 0.54 percent, above their last close. Brent touched $69.29 in late Tuesday trading, which was its strongest since an intra-day spike in May 2015 and before that, in December 2014.
“The extension of the OPEC agreement … and declining inventories are all helping to drive the price higher,” said William O‘Loughlin, investment analyst at Australia’s Rivkin Securities.
In an effort to prop up prices, OPEC together with Russia and a group of other producers extended an output cut deal last November, due to expire in March this year to cover all of 2018. The cuts, which have mostly targeted Europe and North America, were aimed at reducing a global supply overhang that had dogged oil markets since 2014.
Amid the general bull-run, which has pushed up crude prices by more than 13 percent since early December, there are indicators of an overheated market. In the United States, crude oil production is expected to break through ten million barrels per day this month, reaching levels achieved only by Russia and Saudi Arabia. In Asia, the world’s biggest oil consuming region, refiners are suffering from high prices and ample fuel supplies.
“One area of concern, particularly in Asia, is that of (low) refining margins … This drop in margins could reduce Asian refiners’ demand for incremental crude in the near term and weigh on global prices,” said Sukrit Vijayakar, director of energy consultancy Trifecta.
Average Singapore refinery margins this week fell below $6 per barrel, their lowest seasonal value in five years, due to high fuel availability but also because the recent rise in feedstock crude prices dented profits.
While Brent and WTI are still below $70 per barrel, the average price for Asian crude oil grades has already risen above that level, to $70.62 per barrel.