Alexander Novak says rises in oil prices could be due to cold winter

On Tuesday, oil prices fell from three year highs on profit taking, but healthy demand and the OPEC supply cut agreement helped keep Brent near $70/barrel.

By 1:55 p.m. EST, Benchmark Brent had fallen over one per cent to $69.49/barrel after hitting a session low of $68.92/barrel.  US WTI fell 29 cents to $64.01/barrel, dropping from a session high of $64.89.

The Canadian Crude Index rose 15 cents to $41.32.

According to Reuters, crude imports to India rose by about 1.8 per cent in 2017 to a record high of 4.37 million barrels per day (b/d).  The increase is due to expanded oil refining capacity in the world’s second-most populated country.

As well, the OPEC supply cut pact has also bring the market closer to balance as participants in the agreement cut their production by a combined 1.8 million b/d.

However, Russia’s Energy Minister Alexander Novak said that the recent return of Brent to over $70/barrel could be due to cold weather and not a rebalanced oil market.

“It’s such a quiet day … I think this is a pause as you try and decide what the rise in rig counts means and what the Russia comments mean,” Rob Haworth, senior investment strategist at U.S. Bank Wealth Management told Reuters.

Last Friday, Baker Hughes data showed the US rig count rose by 10 last week to 752, and now sits at 230 rigs higher than this time last year.

“All in all, this is still a pretty positive day because even though there is no news to drive prices, you’re not giving up much ground here,” Haworth added.

A number of analysts and market participants believe that with hedge funds and money managers amassing a record number of bullish bets on US crude, oil is vulnerable to profit taking.

Oil prices have risen almost 15 per cent since early December.

“This rally has been driven first by robust fundamentals, with strong demand growth and high OPEC compliance accelerating,” Reuters reports US bank Goldman Sachs said in a note.

“We see increasing upside risks to our $62 per barrel Brent and $57.5 per barrel WTI forecast for the coming months.”

A number of other banks, including Bank of America Merrill Lynch, Societe Generale and Morgan Stanley have also raised their forecasts for oil prices.

But, taking a less positive tone, SocGen said in a note “Our view is that prices are overheated, and will correct lower.” The bank added “We believe that the current situation, with strong uplift from fundamentals, non-fundamentals, and geopolitics all at the same time, is not sustainable.”

One factor which could force oil prices downward is rising US Production.  Most analysts expect US crude output to top 10 million b/d soon.

Photo courtesy Shell.