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article imageOil hovers near $70 highs while U.S. and Canada output increases

By Karen Graham     Jan 15, 2018 in Business
Oil prices started the week just below $70 on Monday, pressured by a rising U.S. rig count, even as the price of crude continues to hover near record three-year highs.
The price of Brent crude, a global benchmark, was down 0.2 percent at $69.73 a barrel on London's Intercontinental Exchange, while on New York's Mercantile Exchange, West Texas Intermediate (WTI) crude futures CLc1 were unchanged at $64.30 a barrel, according to the Wall Street Journal. Trading has been relatively slow because of the U.S. national holiday.
A production-cutting pact between the Organization of the Petroleum Exporting Countries (OPEC), Russia and other producers helped to raise oil prices on the global market last week to levels not seen in three years. And with signs of a tightening market, traders and analysts are confident that prices can be sustained near current levels.
Bank of America Merrill Lynch on Monday raised it's 2018 Brent price forecast to $64 a barrel from $56, forecasting a deficit of 430,000 barrels per day (bpd) in oil production compared to demand this year.
“Tighter fundamentals are (the) main driver to the rally in prices, but geopolitical risk and currency moves along with speculative money in tandem have exacerbated the move,” U.S. bank JPMorgan said in a note, according to Reuters.
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Clouds on the horizon
Despite the price rally, many analysts are urging caution, pointing out the 13 percent rally since the start of the year could peter out due to some ongoing global refinery maintenance and rising North American production. And it is the increased output from Canada's oil sands and U.S. shale producers that has everyone concerned.
On the Toronto Stock Exchange, the oil price picture was similar as oil showed signs of slipping due to production cuts by OPEC and Russia creating a tightening of supplies. In Canada, energy firms almost doubled the number of rigs drilling for oil last week to 185, the highest level in 10 months.
And in the U.S., energy companies added 10 new rigs in the week ending January 12, bringing the total to 752 rigs, according to the energy firm, Baker Hughes. This was the biggest increase since June 2017. Vienna-based consultancy JBC Energy is concerned over the increased U.S. output.
They expect U.S. production to grow by 600,000 bpd in the first quarter of 2018 compared to a year earlier. “From a fundamental perspective, the surge in U.S. managed money raises a clear red flag for us. We see the U.S. complex as decidedly bearish over the next two months.” And they added the surplus in crude is expected “to widen to levels that will overwhelm the market”, JBC said in a note.
More about Oil prices, Record high, Opec, US rig count, current market