Oil hits three-year high on OPEC-led output cuts

Oil prices hit a three-year high on Wednesday, with Brent crude crossing $69-level, driven by OPEC-led production cuts and forecasts on rising demand.

The benchmark grade was trading up 0.5 percent at $69.15 per barrel (bbl), as markets opened in the United Arab Emirates. West Texas Intermediate (WTI) crude was last higher by 0.8 percent at $63.47/bbl.

“Oil prices have hit the ground running at the start of this year, continuing their recovery from the middle of 2017, as global crude stockpiles fell from record high levels and due to good compliance with the production cuts by OPEC and Russia,” said Fawad Razaqzada, market analyst at Forex.com.

The Organization of the Petroleum Exporting Countries (OPEC) and other major producers, including Russia, have agreed to curtail crude output in a bid to help rebalance global markets.

The production limit deal, which was to expire in March, was recently extended by another nine months until the end of 2018.

Following the extension, the market expects crude inventory levels to drop further, Razaqzada said.

The US Energy Information Administration (EIA) in its latest monthly outlook raised its 2018 price forecasts on Brent crude and West Texas Intermediate (WTI) crude by as much as 4 percent, compared to the previous forecast report.

Analysts, however, also warn that the rally is unlikely to continue and a correction should be expected.

“We don’t expect the $60 to remain for long,” Tamer El Zayat, senior economist at National Commercial Bank, told Argaam.

“We expect (the prices) to go back to the mid-$50 range, like $56 or $57,” he said, adding that potential increase in US shale oil production remains a concern for outlook on prices.

Razaqzada noted that the OPEC is set to review the duration of oil output cuts based on fundamentals at its next meeting in June, and could likely end the agreement sooner than expected.

Write to Nadeshda Zareen at nadeshda.zareen@argaamplus.com