Oil Prices Spike Amid Extremely Large API Crude Oil Draw (USO)

A surprise drop in US production and lower crude inventories helped crude oil prices hold on to near three-year high on Thursday

"Another variable to watch will be US crude oil production".

Despite the prospect of flat crude oil prices into the future, EIA forecasts total USA crude oil production will increase to an average of 10.3 million b/d in 2018, up 1.0 million b/d from 2017. Analysts said that could have been the result of extreme cold temperatures across the United States.

The EIA said this week it expects crude prices to average $54.01 a barrel in the first quarter, up from its previous forecast of $51.79 a barrel. West Texas Intermediate, the USA benchmark, was up 0.66 percent to $62.14 per barrel. Earlier in the session, prices hit US$63.67, their highest since December 9, 2014. The narrowing price discount of WTI to Brent in the forecast is based on the assumption that current constraints on the capacity to transport crude oil from the Cushing, Oklahoma, storage hub to the US Gulf Coast will gradually lessen.

Oil producers may be enjoying oil prices at $65 to $70, but these price levels are likely to encourage even more oversupply from us shale, Fatih Birol, the Executive Director of the International Energy Agency (IEA), said at an industry event on Friday.

The price for Brent crude oil, the global benchmark, was up 0.44 percent at 9:20 a.m. EST to $68.08 per barrel.

A broad, global market rally, including stocks, has also fed investment into oil futures.

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"When it comes to hedge fund buying in general the commodities trade is front-and-center and that momentum is building for oil", said Rob Thummel, portfolio manager at energy investment manager Tortoise in Leawood, Kansas.

On Tuesday, the EIA boosted output expectations, saying it now sees overall production at record highs, surpassing 11 million barrels per day (bpd) by 2019.

Bearish signals include a rise in fuel inventories as well as a fall in refined products profits in Asia, which are expected to hamper orders for new feedstock crude.

The continued drop in U.S. crude oil inventories comes as the United States continues to ramp up production, hitting the second highest production level of 2017 in the last week of December of 9.782 million bpd.

Oil's rally shows that the Organization of Petroleum Exporting Countries and its allies are succeeding in clearing the glut triggered by the growth of US shale oil. OPEC, along with non-members including Russian Federation, have extended through the end of this year a deal to cut supply by 1.8 million bpd.

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