Oil prices up on geopolitical risk and inventory declines

A steep drop in U.S. crude oil inventories expected, though some of that may be due to year-end factors and bitter cold.
By Daniel J. Graeber Follow @dan_graeber Contact the Author   |  Jan. 3, 2018 at 10:32 AM
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Jan. 3 (UPI) -- Another steady drop in the U.S. inventory for crude oil and weather-related demand strains helped drive the price of oil higher on Wednesday.

Traders are watching for the gap between supply and demand to draw closer to balance. An oversupplied market over the last few years pushed the price of oil to historic lows, though the Organization of Petroleum Exporting Countries helped drain the surplus with coordinated production declines last year. OPEC members in November agreed to extend the effort through 2018.

Analysts surveyed by commodity pricing group S&P Global Platts said they expect to see a 5.7 million barrel drop in crude oil stocks last week, draining the overhang even further. The frigid cold gripping most of the United States, the world's largest economy, is leading to a surge in demand for heating fuels and other petroleum products.

"We're in the middle of a severe cold snap, one which is likely to drive up demand for heating oil, propane and other petroleum products, which is certainly a bullish start to the year," Patrick DeHaan, a senior petroleum analyst at GasBuddy, said in an emailed statement.

The price for Brent crude oil, the global benchmark, was up 0.77 percent as of 9:14 a.m. EST. West Texas Intermediate, the U.S. benchmark for the price of oil, was up 0.86 percent to $60.89 per barrel.

Geopolitical issues are adding a risk premium to the price of oil. U.S. President Donald Trump and North Korean Leader Kim Jong Un traded barbs this week over the size of their nuclear arsenals, just as Pyongyang seemed to offer a conciliatory tone to its southern adversaries in Seoul.

On Jan. 12, Trump decides whether to issue a waiver on sanctions for Iran under the terms of the U.N.-brokered nuclear deal. More than recent protests, that could curb the sale of around 1 million barrels of Iranian oil on the market and drive the price of oil sharply higher.

Meanwhile, with the United States sending more of its own oil to the open market, refineries are working overtime to process what they have on hand. That's leading to the steady decline in U.S. crude oil inventories, though Platts Oil Futures Editor Geoffrey Craig said in an emailed report there may be a seasonal factor at play.

"Steep drawdowns are common at the end of the calendar year led by the Gulf Coast in an attempt by inventory holders to minimize ad valorem taxes that are assessed as of Dec. 31," he said.

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