Oil continued its revival from the biggest crash in a generation, with prices set for a second annual gain after a year marked by hurricanes, Middle East conflict and the tussle between Opec (Organization of Petroleum Exporting Countries) and US shale, said a report.
Futures are up more than 12 per cent in 2017, having entered a bull market in September. In 2018, investors will watch whether rising prices trigger a new flood of US output.
“The current highs are unsustainable in the short-to-medium term, with prices likely to head back below $60 once we get past January, but for now the season of goodwill appears to be in full swing,” stated analysts led by Michael dei-Michei at consultants JBC Energy in Vienna.
West Texas Intermediate, the US benchmark, is now trading at the highest level since mid-2015, pushed above $60 a barrel by a severe cold snap in the north-eastern US that spiked demand for heating fuel.
Oil topped natural gas as the biggest source of electricity in New England on Thursday morning, after temperatures plunged well below freezing.
US output has surged overall this year, hitting a 46-year high in October when producers pumped 9.6 million barrels a day, according to federal data. The US expects production to top 10 million barrels a day in the coming year.
For now, shale drillers are showing restraint, with the number of working rigs unchanged for the second week in a row, according to Baker Hughes data released on Friday. The rig count, now at 747, stayed relatively stable during the last quarter, even as oil strengthened.
At the same time, speculation is rising that American drillers will put more rigs to work next year as oil strengthens. That could undermine plans by the Opec and and other producers, including Russia, who have pledged to extend production curbs through the end of 2018 to wipe out a global glut.
"With that partially offsetting production cuts by Opec and Russia, the market will have to get confirmation that global inventories will keep coming down," Gene McGillian, a market research manager at Tradition Energy in Stamford, Connecticut, said by telephone. "If we don’t see that pattern continue then, we could see a significant correction."
WTI for February delivery settled at $60.42 a barrel, up 58 cents, on the New York Mercantile Exchange. Total volume traded was about 34 per cent below the 100-day average. Front-month prices are about 12 per cent higher this year, after rising 45 per cent - the most since 2009 - in 2016.