Oil prices climbed on Tuesday, with the U.S. benchmark closing at a more-than-three-year high, as traders bet that a weekly U.S. government report will reveal a tenth-straight weekly decline in domestic crude stockpiles.
March West Texas Intermediate crude rose 90 cents, or 1.4%, to settle at $64.47 a barrel on the New York Mercantile Exchange. That was the highest settlement since Dec. 5, 2014. Brent for March climbed 93 cents, or 1.4%, to end at $69.96 a barrel on the ICE Futures Europe exchange—its highest since Jan. 15, when it topped $70. Oil prices rose Monday after Saudi Arabia’s energy minister Khalid al-Falih told reporters that the Organization of the Petroleum Exporting Countries and a group of non-cartel members led by Russia could extend their production cuts beyond the agreement’s expiration at the end of the year.
At the World Economic Forum in Davos Tuesday, al-Falih told CNBC that there’s an “acceptance” over the need to “extend this framework of OPEC and non-OPEC cooperation…beyond the current agreement.” “The solidarity between Russia and OPEC is at its peak,” said Naeem Aslam, chief market analyst at ThinkMarkets. “Both are committed towards their production cut until the end of this year” and have hinted that they may extend their production-cut agreement beyond 2018. “This is sending a bullish signal for the market, but if they do not comply with this, this is when things would turn upside down for oil bulls,” he said. And if oil prices stay at the current level or climb, “U.S. shale-oil production would continue in only one direction”—higher.
An update on U.S. supply from the Energy Information Administration will be released Wednesday. Analysts surveyed by S&P Global Platts are forecasting a drop of 1.6 million barrels in U.S. crude for the week ended Jan. 19. Last week, the EIA reported that domestic crude supplies fell 6.9 million barrels for the week ended January 12, its ninth-weekly decline in a row. The survey also forecast a 2.1 million-barrel rise in gasoline supplies, but distillates were seen down 2.5 million barrels for last week. The American Petroleum Institute, a trade group, will release its own report on supplies late Tuesday.
On Nymex, February gasoline climbed 1.5% to $1.909 a gallon, while February heating oil rose 1.4% to $2.086 a gallon. Meanwhile, natural-gas futures rallied Tuesday, with the February contract jumping 6.8% to $3.444 per million British thermal units. Prices haven’t settled at a level that high since Dec. 30, 2016. “Support in recent weeks has come from a blast of cold weather across parts of the U.S., which has resulted in unusually strong storage withdrawals, and brought storage levels to the low end of the five-year range,” said Robbie Fraser, commodity analyst at Schneider Electric. That trend is expected to continue in Thursday’s EIA natural-gas supply report “as data reflects last week’s cooler temperatures, but next week should post a reversal as the market starts to feel the impact of warmer weather,” he said.
