Oil dips away from 2015 highs as doubts over rally emerge
seen in 2015, as soaring production in the United States undermined the 10 percent rally from lows hit in December that was driven by tightening supply and political tensions in OPEC member Iran.
US West Texas Intermediate (WTI) crude futures CLc1 were at $61.92 a barrel at 0313 GMT, 9 cents below their last close though still near to the $62.21 high reached the previous day that was the most since May 2015.
Brent crude futures LCOc1 were at $67.96 a barrel, 11 cents below their last settlement, but still not far off the $68.27 high from the day before, also the highest since May 2015.
Traders said political tensions in Iran, third-largest producer in the Organization of the Petroleum Exporting Countries (OPEC), had pushed prices higher.
“The protests in Iran add more fuel to the already bullish oil market mood,” said Norbert Ruecker, head of commodity research at Swiss bank Julius Baer.
Oil prices have received general support by production cuts led by OPEC and by Russia, which started in January last year and are set to last through 2018, as well as by strong economic growth and financial markets.
This has helped tighten markets. US commercial crude inventories C-STK-T-EIA fell by 7.4 million barrels in the week to Dec. 29, to 424.46 million barrels, according to data from the Energy Information Administration (EIA).
That is down 20 percent from their historic peaks last March and close to the five-year average of 420 million barrels.
CAN THE BULL-RUN LAST?
Yet given Iran’s oil production has not been affected by the unrest, and that US production C-OUT-T-EIA will likely break through 10 million barrels per day (bpd) soon, a level so far only reached by Saudi Arabia and Russia, doubts are emerging whether the bull-run can last.
“Prices above $60 per barrel project an overly rosy picture, so we see near-term downside,” Ruecker warned.
“Oil production disruptions (in Iran) remain a very distant threat … Disruptions in the North Sea have been removed with the Forties Pipeline system having resumed full operations. US oil production surpassed the 2015 highs in October and is set to climb to historic highs this year,” he said.
Lukman Otunuga, analyst at futures brokerage FXTM, struck a similarly cautious tone.
“Oil started the New Year on an incredibly bullish note … in part due to ongoing tensions in Iran … (and) over OPEC’s supply cut rebalancing the markets,” he said.
“While the current momentum suggests that further upside is on the cards, it must be kept in mind that US shale remains a threat to higher oil prices.”