Brent crude and West Texas Intermediate started trading in 2018 above US$60 a barrel both for the first time since January 2014, before prices collapsed. WTI hit a high of US$60.68 a barrel in midmorning Asian trading before retreating somewhat to US$60.64, while Brent crude booked a high of US$67.23 a barrel before slipping to US$67.20.
Analysts saw strong demand and tightening supply behind the price rise. In fact, fundamentals and the market’s expectations about fundamental developments this year were strong enough to offset the early restart of the Forties oil pipeline on December 30. The Forties was shut down in early December to repair hairline cracks, which sent Brent soaring as the pipeline supplies some 450,000 bpd of crude oil to the UK.
The fundamental indicators also offset the resumption of production in Libya, after a pipeline blast took off somewhere between 70,000 and 100,000 bpd from daily production. According to a report by Reuters, the pipeline was repaired by December 31 and the oil flow was being gradually resumed.
The last week of 2017 also saw news about higher crude oil import quotas for independent Chinese refineries, signaling a further rise in oil demand in the world’s second-largest consumer. Beijing issued quotas for a total 121.32 million tons (2.43 million bpd) of crude oil imports for 44 companies, and this is just the first quota batch for the year.
To add to the bullish sentiment, U.S. crude oil inventories continued to fall, booking a cumulative fall of as much as 20 percent since March 2017, when they hit a record-high. Although not everyone agrees that EIA’s inventory data is an accurate indicator of supply and demand in the world’s top consumer, the authority’s weekly reports still have market-swinging power.
On the flip side, U.S. oil production continues to grow and will soon break the 10-million bpd barrier, analysts believe. At the end of the year, the daily production rate stood at 9.75 million barrels and higher prices will likely motivate a faster increase this year.