Oil price rise comes as surprise to traders
Oil’s rise this week to $70 a barrel for the first time in three years had clear triggers as supplies tightened and demand climbed, yet it still surprised many traders because there are so many reasons for prices to falter.
Those bearish pressures are still in place, and could make it tough for crude to hold on to its gains.
One thing the major forecasters agree on is that, after shrinking dramatically in 2017, oil stockpiles should be starting to build up again.
Global oil demand dips seasonally as the need for winter fuels recedes, and data from both Opec and the International Energy Agency suggest that will tip the market back into surplus in the first half of this year. Inventories will shrink again in the second half, their data indicate.
While weekly US data show that crude inventories are declining, it will be another couple of months before a clear picture for other consumers emerges.
Supply disruptions boosted prices in early December, when a critical North Sea pipeline was halted, and at the end of the month when a pipeline explosion curbed flows from Opec member Libya.
The suspension of the Forties Pipeline System — one of the North Sea’s biggest disruptions since the 1980s — was resolved by the end of last month, and repairs on the conduit to Libya’s Es Sider terminal were completed at about the same time. Yet the resolution of both outages did little to push prices lower.
Risks to production still remain, though, with Goldman Sachs considering Venezuela and Nigeria to be among the most vulnerable.
Political risks in major oil producers also bolstered the market, yet as these stabilised or receded prices still stayed strong.
A corruption crackdown by Saudi Arabia’s Crown Prince Mohammed bin Salman in November sparked concern that the biggest oil exporter would suffer instability from a backlash but this did not materialise.