On Wednesday, oil prices hit new two-and-a-half year highs as vigorous output in the United States and Russia offset the pressures from a sixth day of unrest in OPEC member Iran.
U.S. West Texas Intermediate (WTI) crude futures were at $60.87 a barrel at 1241 GMT, up 49 cents from their last session. This is their highest level seen since June 2015. Brent crude futures, the international benchmark for oil prices, were at $67 a barrel, up 43 cents since their last session.
Carsten Fritsch, a bank analyst, was concerned that the price of oil needed a correction since the support provided by Iranian unrest will end if it doesn’t affect the production of oil or the United States reinstates sanctions. “It’s surprising that prices remain at such elevated levels near two-and-a-half year highs despite the main cause of the recent rally disappearing,” Fritsch said, regarding the resuming of the North Sea Forties pipeline.
Traders believe that the markets have overextended as U.S. production is predicted to increase and concerns are developing if the growth of demand can keep up with current levels. U.S. oil production has increased nearly 16 percent since the mid-2016, hitting 9.75 million bpd in 2017.
Ole Hansen, head of commodity strategy at a bank, warned, “multiple, but temporary supply disruptions such as the North Sea Forties and Libyan pipeline outages (and) protests across Iran … helped create a record speculative long bet.” With both pipelines back up and running and the Iranian protests not affecting oil production, Hansen believes we will see a the price drop early this year.
“It is only a matter of time before the 10 million barrel per day (bpd) (U.S.) production target will be reached,” Hansen said.
The apprehensions of Russia ending its OPEC agreement early to cut output by 300,000 bpd weighed on outlook. The latest data shows Russian output increased to an average of 10.98 million bpd, compared to 10.96 million bpd in 2016 and 10.72 million bpd in 2015.
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“Even though they have reduced that astronomical number (from Oct. 2016), they are still producing more (in 2017 than in 2016),” said Matt Stanley, a fuel broker in Dubai. Because of this, Stanley stated that his bank saw lower crude prices , at the end of the year with Brent at $60 per barrel and WTI at $57.