In addition to the OPEC and non-OPEC production cuts of 1.8 million barrels per day (bpd) that are due to last until the end of 2018, oil prices have found support from eight consecutive weeks of USA crude inventory drops.
That follows the global benchmark's rally to $70/bbl on Thursday amid a steady run of diminishing US crude stockpiles and healthy demand.
Oil's rally shows that the Organisation of Petroleum Exporting Countries and its allies are succeeding in clearing the glut triggered by the growth of USA shale oil. Another variable to watch will be US crude oil production.
With the climb in crude, there are growing signs that Opec could be falling into a trap it had sought to avoid.
"Seventy dollars is too much", said Eugen Weinberg, head of commodities research at Commerzbank in Frankfurt. The economic analysts are looking for import prices to rise 0.4% compared to 0.7% in November.
Q: How are OPEC's presence in the crude oil market and the recent trends in shale oil being interpreted?
The Yomiuri ShimbunTakayuki Nogami, a chief economist of the Japan Oil, Gas and Metals National Corporation, spoke about the current crude oil market with The Yomiuri Shimbun. The deal coupled with ongoing geopolitical tensions in countries in the Middle East has been successful in pushing the crude oil prices to their highest levels in three years.
Even prior to the recent oil high two supermarket retailers added 0.5ppl to their prices in one day, and the United Kingdom average prices of both petrol and diesel have gone up by almost a penny since Christmas. Currently, WTI crude is trading at $63.48, while brent crude is trading at $69.04. By the way, Iran is the OPEC's third-biggest producer of crude oil. Yet for the oil majors it could hamper recovery at a time when higher crude prices and lower costs are finally seeing them return to profits. In the meantime, data shows continued strong demand for oil, while the International Energy Administration has increased its forecast for oil demand in 2018 by 100,000 barrels.
Prices have rallied over 50% since June a year ago, propelled by geopolitical tensions, supply disruptions and production cuts by the Organization of the Petroleum Exporting Countries. EIA forecasts the USA average regular retail gasoline price will average $2.57/gallon (gal) in 2018 and $2.58/gal in 2019, slightly higher than the $2.42/gal average in 2017. It did, however warn that if the U.S. lifts shale production "dramatically" to around 11m barrels per day, the range could return to $30 to $50 per barrel.