Oil Boosted by IMF Growth Expectations
January 23 2018 - 4:30PM
Dow Jones News
By Alison Sider and Christopher Alessi
Oil prices rose to a fresh three-year high Tuesday, by hopes
that the global economy will keep humming, boosting demand for oil
in a market that has been growing steadily tighter.
U.S. crude futures rose 90 cents, or 1.42%, to $64.47 a barrel
on the New York Mercantile Exchange -- the highest since December
2014. Brent, the global benchmark, rose 93 cents, or 1.35%, to
$69.96 a barrel on ICE Futures Europe.
"Everything is just playing the bull song," said Donald Morton,
senior vice president at Herbert J. Sims, who oversees an energy
trading desk. Efforts by the Organization of the Petroleum
Exporting Countries to restrain production have helped work off a
supply glut, and the group is talking about extending its
cooperation beyond this year. Speculators have amassed a record net
bullish position in crude futures, helping bolster the market.
"Every speculator and his brother continues to want to buy, buy,
buy," Mr. Morton said.
Analysts and traders surveyed by The Wall Street Journal are
expecting U.S. data due Wednesday to show that oil stockpiles fell
by 1.9 million barrels last week -- that would be the
tenth-consecutive week of declining inventories.
And global economy looks set to continue surging this year,
continuing a trend from 2017 when countries around the world began
to grow in sync. Oil's move higher Tuesday came after the
International Monetary Fund raised its forecasts for global
economic growth on Monday, which could extend last year's
greater-than-expected increase in oil demand for another year.
The global economy should grow by 3.9% a year in 2018 and 2019,
up 0.2% from a previous estimate -- driven in large part by the
recently approved U.S. tax-code changes, the IMF said Monday.
"It is not a far-fetched thought to expect global oil demand and
oil-demand growth to follow suit shortly," Tamas Varga, an analyst
at brokerage PVM Oil Associates Ltd., said in response to the IMF
estimates.
Crude prices also found support from Vice President Mike Pence's
speech to Israel's Knesset Monday, during which he said the U.S.
would pull out of the 2015 international agreement to curb Iran's
nuclear program without significant changes to the accord.
If the U.S. were to exit from the deal, it would likely result
in the re-imposition of economic sanctions on Iran that would limit
its oil exports and reduce global supply, analysts said.
Other bullish factors included an expected tenth-consecutive
weekly drawdown in U.S. stockpiles last week when the U.S. Energy
Information Administration releases data Wednesday, as well as
signals over the weekend from Saudi Arabia that OPEC could extend
its production cuts beyond 2018, according to Ole Hansen, head of
commodity strategy at Saxo Bank.
"It's probably a mix of the whole lot" of factors, Mr. Hansen
said. But he cautioned that prices were unlikely to rise much
higher, as the market "settles into a range."
But some say there are risks on the horizon. Bullish positioning
can become a threat, if some trigger sends investors rushing to
sell at the same time. Barclays analysts said in a research note
Tuesday that some of the factors that pushed oil higher may fizzle
out.
"The market is dangerously focused on newly published
backwards-looking data and, in our view, is not paying attention to
the stockbuilds that are likely to emerge later this year and in
2019," they wrote.
Prices retreated at the end of last week after the International
Energy Agency said it expected U.S. crude production to rise to
over 10 million barrels a day this year, surpassing Saudi Arabia's
output and rivaling that of Russia.
Gasoline futures rose 2.86 cents, or 1.52% to $1.9087 a gallon.
Diesel futures rose 2.92 cents, or 1.42% to $2.0861 a gallon.
Write to Alison Sider at alison.sider@wsj.com and Christopher
Alessi at christopher.alessi@wsj.com
(END) Dow Jones Newswires
January 23, 2018 16:15 ET (21:15 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.