SINGAPORE: Oil prices gave up some early gains on Wednesday as analysts warned of a downward correction, but remained well supported on the back of tightening supply and strong global demand
Tighter fundamentals have lifted
both crude futures benchmarks about 13 per cent above levels in early December,
helped by production curbs by OPEC and Russia, as well as by healthy demand
growth.
Brent crude futures were at
$69.23 a barrel at 0808 GMT, up 8 cents from their last close, but down from a
high of $69.37 earlier in the day. Brent on Monday rose to $70.37 a barrel, its
highest since December 2014, the start of a three-year oil price slump.
US West Texas Intermediate (WTI)
crude futures were at $63.84 a barrel, down from a high of $63.89 earlier, but
up 11 cents from their last settlement. WTI hit $64.89 on Tuesday, also the
highest since December 2014.
Norbert Ruecker, head of
commodity research at Swiss bank Julius BaerBSE -0.69 %, said a price
"correction should occur... (as) hedge fund expectations for further
rising prices have reached excessive levels."
He said this was especially the
case as political risk factors that have helped boost Brent, including tensions
in Qatar, and the Kurdish region of Iraq and in Iran have so far not caused
significant supply disruptions.
Money managers have raised the
bullish positions in WTI and Brent crude futures and options to a record,
according to data from the US Commodity Futures Trading Commission and the
Intercontinental Exchange.
BMI Research said
"seasonally high refining run rates" from the northern hemisphere
winter season "are set to fall substantially" as the end of winter
approaches.
Brent spot crude futures
contracts have already moved out of winter, now trading for March deliver ..
"This will act as a
substantial drag on global crude demand in Q1 and feeds into our bearish
short-term outlook on Brent," BMI said.
Still, traders and analysts said
overall oil markets were well supported, and steep price falls unlikely.
The Organization of the Petroleum
Exporting Countries (OPEC) and Russia have been withholding production since
January last year and the cuts are set to last through 2018.
This restraint has coincided with
healthy oil demand.
"Oil remains underpinned by
the solid economy with strong oil demand tightening global oil inventories. The
past years' surplus supplies are slowly disappearing," Ruecker said.
One factor that in 2017 prevented
crude prices from rising further was a surge in US production.
Despite a recent drop due to
extreme cold, US crude output <C-OUT-T-EIA> is expected to soon break
through 10 million barrels per day (bpd), challenging top producers Russia and
Saudi Arabia.
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Source: Economictimes
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