Crude oil prices peaked again raising doubts about overheating of the market

A market surplus driven by USA shale oil and a previous strategy by the Organization of Petroleum Exporting Countries to defend a market share with robust production levels meant there was plenty of room for risk.

Lower domestic crude oil prices made US crude oil more competitive in global markets and supported record USA crude oil exports.

USA crude futures rose 61 cents, or 0.97%, to $63.57 a barrel on the New York Mercantile Exchange - the highest settlement since December 9, 2014.

Brent crude oil futures briefly broke back above $70 per barrel while West Texas Intermediate was trading around $64 per barrel.

Brent, the global benchmark, rose 38 cents, or 0.55%, to $69.20 a barrel in ICE Futures Europe.

"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. OPEC, along with non-members including Russian Federation, have extended through the end of this year a deal to cut supply by 1.8 million bpd.

In spite of this, US production C-OUT-T-EIA is expected soon to rise above 10 million barrels per day, largely thanks to soaring output from shale drillers. OPEC member Venezuela's economic problems are affecting its production and exports, giving investors an opportunity to buy oil futures.

"OPEC is cutting output by even more than it promised and the restraint is reducing oil stocks globally, a trend most visible in the United States, the world's largest and most transparent oil market".

Thursday's rise was also bolstered by a surprise fall in U.S. oil stockpiles. United States production also fell by 290,000 barrels per day to 9.5 million. "It's not completely unexpected, given the price momentum".

But Bijan Namdar Zanganeh, oil minister for Iran, on Tuesday declared that "Members of the Organization of Petroleum Exporting Countries are not keen on increased Brent crude prices above $60 a barrel because of shale oil".

Higher oil prices helped support oil major stock prices.

EIA research shows that USA gasoline prices tend to follow the price of the best grades of oil in Europe, more than they follow the price of the best US crude.

Such an outcome will provide a huge upswing in valuation (and share prices) of the likes of Woodside Petroleum Limited (ASX: WPL), Oil Search Limited (ASX: OSH), Santos Ltd (ASX: STO) and Origin Energy Ltd (ASX: ORG).

Net U.S. crude imports USOICI=ECI rose last week by 152,000 bpd.

USA production is expected soon to rise above 10 million barrels per day, largely thanks to soaring output from shale drillers, according to federal energy data.

"However, prospects for further increases in U.S. oil production amid recent improvements seen in oil prices continue to promote bearish sentiment", Kumar said.

  • Carolyn Briggs