Oil price posts two-year highs - but how long can it last?

Brent rose above $59 a barrel this week, its best third-quarter showing since 2004

Oil drills
(Image credit: Mark Ralston/AFP/Getty Images)

Oil price records biggest weekly gain this year

31 July

Oil prices hit their highest level for two months following their strongest weekly rally so far in 2017, says MarketWatch.

Brent crude, the international oil price benchmark, was up marginally by 0.1 per cent this morning, building on gains last week to reach $52.75 a barrel. If it holds, it would be the highest closing price since 29 May.

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US counterpart West Texas Intermediate was flat at $49.77 a barrel, having already registered its highest close since the final days of May.

Last week, the powerful Opec cartel agreed to extend its ongoing production cap to Nigeria, albeit at 200,000 barrels above current output, and to limit exports from its largest producer, Saudi Arabia, in August.

There was also a report suggesting a hefty drawdown of US crude oil stocks and that new shale-oil drilling in the country is slowing.

“Fundamentals continue to suggest a more-balanced crude-oil market," said ANZ.

However, Nick Butler in the Financial Times warns Opec's moves will prove to be "directionally right but insufficient".

He cites rising production in Libya, an Opec member exempt from caps and with up to 500,000 barrels a day of spare capacity, as well as US production that is expected to accelerate again if the oil price holds higher.

Ric Spooner, chief analyst at CMC Markets, appears to agree, saying US producers have proved "how elastic they can be" and that oil prices would most likely remain rooted in range from the mid-$40s to low-$50s.

Oil price still rising after biggest one-day rally of 2017

26 July

The oil price enjoyed its biggest one-day rally for this year so far yesterday and has continued to rise.

International benchmark Brent crude, which leapt more than three per cent to above $50 a barrel on Tuesday, rose today for the third straight session, adding 0.3 per cent to hit $50.36.

It's US counterpart West Texas Intermediate, riding the same wave of support, was trading 0.6 per cent higher to $48.20 a barrel.

A meeting of Opec producers earlier this week kick-started the rally after one of its two members excluded from an extended output cuts deal were brought into the fold.

"Nigeria... promised to limit its daily production to 1.8 million barrels per day," says MarketWatch. While that's above the country's current level of 1.6 million barrels, it removes any risk Nigeria will ramp up output enough to offset cuts elsewhere.

Saudi Arabia also pledged some short-term additional support by saying it will limit its own exports to 6.6 million barrels per day next month.

That would be around a million barrels per day less than the same month last year, although analysts did say "the Saudis normally lower exports at this time of year because of stronger domestic demand for oil", adds Market Watch.

Nevertheless, the moves were seen as positive by traders hoping for more concerted action to rebalance the market and erase a massive supply overhang from the past three years.

Those hopes were given a further boost by private sector data showing US crude oil inventories fell by 10.2 million barrels last week, four times more than expected.

All eyes will be on the Energy Information Administration's report to see if it confirms the draw.

However, PVM oil analyst Stephen Brennock, in a note reported by Reuters, warned: "Relieved bulls should be careful what they wish for.

"Any price rebound will only embolden US shale producers at a time when rumors have started to emerge that the US shale boom is slowing."

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