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Oil Price Hits Three-Year High

13 January 2018

Brent crude prices have climbed after members of Opec, the cartel of 14 oil-producing nations that accounts for 40 per cent of the world's output, said it would continue to limit supplies.

Oil topped $70 a barrel in London for the first time in three years as production cuts by Opec and rising demand whittle away a global surplus.

The price of West Texas Intermediate crude in NY was $US62.67 a barrel, on Tuesday, the highest in since December 2014. They marked a December-2014 high of $63.53 a barrel in early trading.

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.

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Last November, OPEC together with Russian Federation and other countries extended the deal to reduce oil production, expecting the agreement to cover the entire 2018.

USA crude production is forecast to average 10.3 million barrels a day in 2018, a record level.

The greenback-denominated commodity has also benefited from weakness in the dollar, which neared a one-week low on Thursday, as it makes oil cheaper to buy for holders of other currencies.

Durante said oil was benefiting from bullishness about the global outlook - with stock markets buzzing, in part due to President Trump's success in pushing through tax cuts at the end of 2017. That follows the global benchmark's rally to $70/bbl on Thursday amid a steady run of diminishing USA crude stockpiles and healthy demand.

Shale oil producers are expected to pump 10 million barrels a day from next month, according to forecasts by the US Energy Information Administration.

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Meanwhile, US explorers cut the number of rigs searching for oil last week by the biggest margin in two months.

Futures contracts show an expectation for prices to pull back by year end, with the December U.S. crude futures contract CLZ8 now trading just above $60 a barrel.

The American Petroleum Institute said yesterday that crude inventories fell by 11.2 million barrels in the week to January 5, to 416.6 million barrels.

Oil at $70 will be welcome relief for oil majors and nations such as Russian Federation and Saudi Arabia who rely on their oil revenues for the vast majority of their incomes. Domestic demand was also higher: US product supplied for crude oil and petroleum products was the highest level since 2007.

The expectation has been that USA producers would fill the void - encouraged by the price boost - providing some balance to the market.

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On August 25, 2017, Hurricane Harvey made landfall in the U.S. Gulf Coast, disrupting refinery and port operations and resulting in a steep decrease in refinery operations.

Oil Price Hits Three-Year High