Oil prices hold near 2015 highs, but doubts over rally emerge

Oil prices hold near 2015 highs, but doubts over rally emerge

As we roll into 2018, the higher oil prices continue to drive increased USA shale production, and set the stage for yet another year of the OPEC-shale tug-of-war that will influence the price of oil. Currently, prices are trading at 2.5 year high near 3,920 levels, which is positive for crude oil prices.

Despite relatively high US crude oil production, curtailments in production by members of the Organization of the Petroleum Exporting Countries (OPEC) and robust global demand supported crude oil price increases in 2017, EIA said.

Oil prices are now at about their highest price since the market crashed in 2014, which caused shares in UK-listed firms to rise this morning. Output from producers outside Opec will continue to grow by an average of 1.3 million bpd, the IEA forecast in December.

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.

"Beyond the recent focus on street protests, the potential reinstatement of United States sanctions targeting the Iranian oil industry remains an issue", JBC analysts said.

The continuous rise in USA shale production a year ago offset part of the OPEC-Russia production cuts and capped oil price gains.

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Brent crude futures for March delivery fell 41 cents to $67.66 a barrel, a 0.6 percent loss. Fears have intensified that the Trump administration in the USA would not certify nuclear deal with Iran, hampering supplies from the Opec's third-largest crude producer.

At the same time, expectations for global demand have strengthened as economies around the world have shown strong growth.

Opec, supported by Russian Federation and other non-members, began to hammer out a deal to cut supplies again in 2016, aiming to lift prices by removing a glut built up in the previous two years.

As the shale fracking increased output in the US over the last few years, Saudi Arabia responded by significantly increasing output and flooding the market with oil, starting in 2015.

For one, they noted that they had to apprise DOE officials of the presence of "dead stock" in inventories or products that can no longer be made available for sale - which is a standard experience in oil markets globally. However, supply had curtailed due to production problems in Venezuela and in South Dakota in the United States, as well as pipeline issues in Libya and the Forties Oil Field in the North Sea.

It said the OPEC agreement to curtail crude oil production in 2017 and subsequent extension of that agreement through 2018 tightened crude oil supplies, which put upward pressure on crude oil prices. Economists had projected that crude in USA storage would decline by 5.7 million barrels. Profit-taking and technically overbought conditions may be behind the early weakness.

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