Although oil prices were down early on Tuesday, with Brent just below the $70 threshold, robust global oil demand growth and continued OPEC-Russia production cuts are currently supporting the price of oil hovering at the $70 mark and overriding concerns that U.S. shale will grow even more than predicted.
Oil prices this month have not been so high in three years.
At the end of 2017 and early 2018, the sentiment turned decisively bullish, amid geopolitical concerns—mostly from the Middle East, signs of a tighter oil market, and healthy global economic growth that boosts oil demand growth.
“This rally has been driven first by robust fundamentals, with strong demand growth and high OPEC compliance accelerating,” Goldman Sachs said in a note on Tuesday, as carried by Reuters.
“We see increasing upside risks to our $62 per barrel Brent and $57.5 per barrel WTI forecast for the coming months,” Goldman said.
“The market is hitting technical resistance. We need to see a confirmation of a true break past $70 a barrel,” Olivier Jakob at consultancy Petromatrix told Reuters. Related: Romania Poised To Ramp Up Gas Output
So far this year, the oil market has looked more to the bullish factors and ignored the largest bearish one—the rise in U.S. oil production. American production growth has stalled in recent days because of the very cold weather, according to analysts. EIA weekly data shows production was 9.492 million bpd in the week to January 5, down from 9.782 million bpd the previous week.
Hedge funds have also been very bullish lately and have taken a record net long position in the main crude oil and fuels futures and options contracts in the week to January 9. Although this has left the market too stretched and exposed to risk of a correction, it looks like not many money managers are currently willing to bet against an oil price increase just yet, Reuters market analyst John Kemp says.
By Tsvetana Paraskova for Oilprice.com
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