Oil prices climb on storage declines

U.S. oil prices surged to a more than three-year high Thursday, fueled by a large decline in U.S. crude storage and continued speculation over OPEC's ability to boost production.

Domestic benchmark West Texas Intermediate crude soared 83 cents to $73.59 a barrel Thursday. The price is up $3.06, or 4.3 percent, since the U.S. Energy Information Administration reported Wednesday that U.S. oil stocks fell by 9.89 million barrels over the past week.

While prices have soared, they also have narrowed the gap between domestic and international prices. U.S. benchmark oil sold for $9.83 less than international benchmark prices on June 19. That spread narrowed to $3.82 a barrel Thursday.

Oil prices over the past few years have been insulated from supply disruption concerns because U.S. producers flooded the global market with shale oil. That oversupply is all but gone, and the world is returning to a more traditional situation where prices are affected by changes in supply and demand.

U.S. storage levels fell this week even as domestic production continues to set record highs.

The weekly storage decline of 9.89 million barrels far outpaced the five-year average withdraw of 1.42 million barrels for this time of year. Refinery output set a record of 17.8 million barrels a day while U.S. oil exports climbed to a record of 3 million barrels a day.

Mixed messages from OPEC

Global oil production has received mixed information in recent weeks. Leaders of the Organization of Petroleum Exporting Countries

over the weekend agreed to return to the tightened production quotas they set nearly two years ago as global prices fell because of overproduction. Since then, the cartel has continued to cut production, exceeding their reduction goals by nearly 60 percent.

Much of the underproduction has been in

Venezuela, where political and economic problems have all but shut down economic activity, including oil production. The recent OPEC deal calls for countries to return to their quotas, but it doesn’t allow for countries to overproduce to make up for shortfalls in Venezuela and other producing states.

Saudi Arabia holds the

vast majority of the cartel’s excess capacity.

Global supply also is in question because of sanctions the Donald Trump administration has proposed for Iran. Those sanctions could by the end of the year restrict Iran’s ability to sell its oil.

It’s far from certain whether recent price gains will hold, but it is

worth noting that higher domestic oil prices could boost profits at oil companies throughout Oklahoma and the country and could support increased production in the country’s most active oil fields, including Oklahoma’s STACK and SCOOP plays. Most companies set their budgets based on prices well below today’s sales prices.

Executives at many publicly traded companies, however, have pledged to focus on cost and debt reduction before increasing drilling activity. Higher prices could help them reach their goals more quickly, but it is unlikely drilling programs will rapidly expand beyond what companies have already announced.