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A tightening oil market drives oil back toward $70 per barrel

A global growth forecast from the IMF paints a rosy picture, but also warns of clouds brewing on the economic horizon.

By Daniel J. Graeber
Crude oil prices extended a rally on signs of improved global economic momentum and a market moving ever closer to balance. File photo by John Angelillo/UPI
Crude oil prices extended a rally on signs of improved global economic momentum and a market moving ever closer to balance. File photo by John Angelillo/UPI | License Photo

Jan. 23 (UPI) -- Signs of a global market for crude oil moving closer to erasing the surplus on the five-year average for stockpiles put oil prices back near $70 on Tuesday.

The price for Brent crude oil, the global benchmark, already closed above $70 per barrel once this year, a four-year high that followed a 4 percent spike in the price for oil over a few opening sessions. Prices pulled back somewhat on profit-taking and moderate easing in geopolitical tensions, but renewed economic momentum is driving another rally.

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On Monday, the International Monetary Fund said global economic momentum has been on an upward swing since at least 2016 and is showing signs of its broadest streak in nearly two decades. For the global economy, the growth rate was revised upward by 0.2 percentage points to 3.9 percent for both this year and 2019.

That recovery, which the IMF said was accelerating the fastest in Europe and Asia, is leading to demand pressures at a time when supplies are at a premium because of an effort by the Organization of Petroleum Exporting Countries to drain the market surplus with coordinated production declines.

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A survey of analyst sentiments from commodity pricing group S&P Global Platts said it expected crude oil stockpiles in the United States, the world's leading economy, to show a decline of 1.6 million barrels for last week. The U.S. market is oversupplied by about 5.4 percent, based on the five-year average, compared with a high in the double digits.

The price for Brent crude oil was up 0.88 percent as of 9:22 a.m. EST to $69.64 per barrel. West Texas Intermediate, the U.S. benchmark for the price of oil, was up 0.8 percent to $64.08 per barrel.

S&P's estimate for the drain on crude oil inventories is nearly twice as high as the previous week's forecast. The American Petroleum Institute publishes industry data late in the trading day Tuesday, followed by official estimates from the U.S. Energy Information Administration on Wednesday. All three estimates usually vary considerably.

The rally in crude oil prices is driving U.S. shale momentum toward record-highs, but Geoffrey Craig, the oil futures editor at Platts, said it's possible the demand forecasts are over-hyped.

"That is significant because perhaps the biggest question facing the oil market is whether demand will prove adequate to absorb likely further increases in U.S. production," he said in commentary emailed to UPI.

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Elsewhere, the IMF said global growth may hit a wall. Gains from the U.S. tax overhaul, while permanent for big corporations, are temporary for most workers and the economic boost will be short-lived and add to a growing U.S. account deficit.

"Our view is that the current upturn, however welcome, is unlikely to become a 'new normal' and faces medium-term downside hazards that likely will grow over time," Maurice Obstfeld, the IMF's director of research, said in a statement.

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