Oil prices reached highs last seen at the end of 2014 early on Thursday, with WTI Crude trading just below $70 a barrel after another drop in U.S. inventories and talk of Saudi Arabia reportedly pushing for oil prices as high as $100 a barrel.
Oil prices were boosted on Wednesday by the EIA weekly U.S. inventories report and a media report that Saudi Arabia would be pushing for oil prices to go as high as $100 a barrel, following reports from last week that it was aiming for $80.
The EIA report on Wednesday showed a 1.1 million barrel draw in crude oil inventories and a gasoline stockpile draw of 3 million barrels, compared with a half-a-million-barrel increase in the week before. Distillate inventories were also down, by 3.1 million barrels, after a weekly draw of 1 million barrels in the prior seven-day period.
Oil prices are also supported by the geopolitical risk premium, with the possibility of fresh sanctions on Iran and Venezuela spiraling further into crisis both threatening to take more barrels of supply from the market in the coming months.
“The Saudis and their colleagues in OPEC need higher oil for their fiscal positions and the Kingdom is on a bold and costly reform programme. So they might continue to squeeze the lemon while they have the chance,” Greg McKenna, chief market strategist at futures brokerage AxiTrader, told Reuters.
Some analysts, however, see the current rally as unsustainable, especially without an actual supply disruption.
“This is not to say that the current $74-plus Brent price is not vindicated by other factors, but based purely on global supply and demand data, prices should not be this high,” analysts at PVM told Reuters.
Daniel Lacalle, chief economist at Tressis Gestion, told CNBC on Thursday that “oil prices are high because the dollar is low” and warned that “massive supply management” has always been likely to lead to an “artificial” jump in the price of oil.
“That is a big concern … Because oil prices don’t generate crises; the abrupt and unexpected rise of oil prices creates crises,” Lacalle told CNBC.
Also today, the chief executive of oil major Total, Patrick Pouyanné, warned that high oil prices could start eroding—albeit slightly—oil demand growth.
“Do not underestimate the higher price impact on demand...the outlook remains uncertain despite higher prices and a tighter market,” Pouyanné said at an industry event. The oil industry has to be a “little bit careful” wishing for higher prices, because the key characteristic of the market now is volatility, Total’s CEO said.
By Tsvetana Paraskova for Oilprice.com
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