A tightening oil market drives oil back toward $70 per barrel

A tightening oil market drives oil back toward $70 per barrel

USA crude prices topped $65.00 a barrel for the first time in more than three years on Wednesday after government data showed the 10th straight weekly drop in US stockpiles of crude oil.

Crude oil futures rose 0.96 per cent to Rs 4,084 per barrel today as speculators raised their bets owing to a firm trend overseas.

WTI reached a high of $65.42 a barrel, with its discount to Brent narrowing to $5 a barrel, down from around $6.50 at the beginning of the year.

Oil prices rose $1 on Tuesday, surpassing the $70 per barrel mark, as an optimistic growth outlook was given by the International Monetary Fund (IMF) Monday, in addition to strong demand and suggestions of a "price shock" triggered by struggling Venezuela.

"This is the lowest level for U.S. crude inventories since February 2015, and is a signal that demand is outpacing supply", researchers at the University of Alberta said in a note.

The Energy Information Administration yesterday said United States crude production rose for a second consecutive week to 9.88 million barrels a day.

According to the EIA, oil stockpiles slumped lower at the storage hub of Cushing, Okla., falling to 39.2 million barrels, lowest since January 2015. Brent crude futures also traded 0.4% higher of 27 cents to trade at $69.31 per barrel close to its previous three-year high of $70.37 per barrel last week.

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"It remains to be seen though how they will react to US$70/bbl oil prices, and a look at capex budgets during full-year announcements in February should give us a better idea as to whether the restraint is for real".

The report was further evidence that production limits by OPEC, Russia and several other oil-producing nations are achieving their goal of shrinking stockpiles in developed countries.

Economic growth is translating into oil demand growth and comes at a time that OPEC and Russian Federation lead production cuts aimed at tightening the market.

While some analysts anticipate rising prices will touch off a wave of USA shale oil production that will sink prices, Johnston does not believe current prices are vulnerable to that scenario. Analysts forecast a 1.6 million-barrel draw in Reuters poll.

Oil prices have recovered by nearly 50% since mid past year when crude oil prices traded around the $40 level.

U.S. West Intermediate Texas (WTI) futures were also trading higher, by $1.01, or 1.59%, at $64.58/Bbl at 11.14 a.m. (EST).

S&P's estimate for the drain on crude oil inventories is almost twice as high as the previous week's forecast.

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