Analysts wary of overheating as oil prices surge

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12 Jan, 2018

Analysts wary of overheating as oil prices surge

Oil prices hit a four year high on Thursday before settling just below $70 per barrel, as OPEC members reiterated their stance towards extending production cuts until the end of this year.

Brent crude future surged to its highest level since November 2014 at $70.05 a barrel before settling at $69.26, which was still its highest close to a session in three years.

2018 is still in its infancy but Brent has already gained 5% since the beginning of the year, picking up from where it left off last year following a late surge.

Elsewhere, US West Texas Intermediate (WTI) crude futures surged 2 3cents to settle $63.80 per barrel, its highest since December 2014.

However, Reuters reports that analysts remain sceptical as to whether oil prices can consistently remain above the $70 benchmark value with Marty Wallace from iitrader.com saying: “The propulsion of the upside was due to short-covering and no buying”.

In fact, some analysts are concerned of a market overheating. “You have a very overbought market. Oil is acting like an internet stock and when it does that you know it’s getting overcooked,” said Walter Zimmerman, chief technical analyst for United-ICAP.

In order to curb a global glut, OPEC and non-OPEC members first reached a significant deal in late 2016 to cut production by 1.8 million barrels per day (bpd) by mid-2017, achieving varying success.
Last year, the deal was extended until the end of 2018, although there will be a review in the mid-way point of this year.

The British motoring group, RAC, warned that rising oil prices could lead to higher forecourt costs for motorists, BBC reports. Although, the AA says that motorists could benefit if supermarkets resume their petrol price war.

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