Oil futures continued to gain on Thursday, hovering at 3½-year highs after a surprise fall in U.S. supplies, and as investors expect a meeting of major oil producers to confirm strong compliance with their production-cut agreement.
The combination of strong U.S. product demand, strong refining runs, and the ongoing” Organization of the Petroleum Exporting Countries-led output-cut agreement continue to trigger stronger crude-supply draws “than seasonal averages would expect,” said Robbie Fraser, commodity analyst at Schneider Electric.
“That’s ultimately the key factor behind surging prices (alongside elevated geopolitical risk), and continues to overshadow rising production from U.S. shale producers,” he said in a note.
May West Texas Intermediate crude rose 65 cents, or 1 percent, to $69.12 a barrel on the New York Mercantile Exchange. The contract, which expires at Friday’s settlement, closed up 2.9 percent to $68.47 a barrel on Wednesday, its highest finish for a front-month contract since Dec. 1, 2014, according to FactSet data.
June Brent the global crude benchmark, gained 99 cents, or 1.4 percent, to $74.47 a barrel. It finished up 2.7 percent to $73.48 a barrel Wednesday, which marked the highest settlement since Nov. 26, 2014.
The U.S. Energy Information Administration on Wednesday said crude supplies fell by 1.1 million barrels for the week ended April 13. Analysts surveyed by S&P Global Platts had forecast a climb of 625,000 barrels, while the American Petroleum Institute on Tuesday reported a fall of roughly 1 million barrels.
Traders were also looking ahead to the outcome of the joint Organization of the Petroleum Exporting Countries and non-OPEC ministerial monitoring committee meeting expected to be held on Friday. At the last joint Ministerial Monitoring Committee, or JMMC, gathering held in late January, the committee said OPEC and its allies saw compliance with production-cut agreement at 129 percent in December 2017.
The producers at the meeting are likely to “boast compliance” with the production pact and possibly even discuss “how they would like crude near $100,” said John Macaluso, an analyst at Tyche Capital Advisors.
Major oil producers may be targeting much higher oil prices. In briefings in recent weeks, senior Saudi officials have conveyed their desire to see crude prices at around $80 or even $100 a barrel, in part due kingdom’s planned IPO of Saudi Aramco, according to a report from Reuters on Wednesday, which cited industry sources.
The next regularly-scheduled OPEC meeting is set for June 22 in Vienna and that’s where members of the group are expected to discuss a possible extension of the output-cut agreement beyond its expiration at the end of this year.
The oil market also continues to see some “fear premium” from geopolitics,” said Macaluso.
The $70 level “seems inevitable” for WTI, and prices are likely to trade in a range around $70-$75 next month, he said.
On Nymex, May gasoline rose 0.6 percent to $2.081 a gallon, while May heating oil gained 1 percent to $2.112 a gallon.
Natural-gas prices, meanwhile, pared some of their earlier losses after the EIA said domestic supplies of natural gas fell by 36 billion cubic feet for the week ended April 13. Analysts surveyed by S&P Global Platts had forecast a decrease of 25 billion cubic feet but on average over the last five years for the same week inventories climbed by 38 billion cubic feet.
May natural gas traded at $2.722 per million British thermal units, trading down 0.6 percent for the session, but up from $2.685 before the data.