Jan. 9 (UPI) -- Expectations of another drain on U.S. crude oil inventories supported a soft increase in oil prices early Tuesday, though a reversal may be overdue.
A survey of analysts by commodity pricing group S&P Global Platts revealed expectations of a 3.5 million barrel draw on crude oil inventories in the United States, the world's leading economy. Platts last week expected a 5.7 barrel million draw, though federal data showed a decrease of 7.4 million barrels.
"Inventories ended 2017 9.3 percent above the five-year average, a stark contrast to the 35.6 percent surplus seen at the end of 2016," Oil Futures Editor Geoffrey Craig said in a statement emailed to UPI. "This reduction in the size of excess stocks emerged as a catalyst for higher oil prices."
Traders are watching the surplus on the five-year average in crude oil inventories for signs of balance. The Organization of Petroleum Exporting Countries, with help from big producers like Russia, are working to drain the surplus through managed production cuts, now in their second year.
Iranian Oil Minister Bijan Zangeneh said Tuesday that prices this year were supported in part by OPEC commitments, but also by demand strains from severe winter weather. OPEC in December, however, produced about 50,000 barrels per day more than in November.
He warned, meanwhile, that oil prices above $60 per barrel could be a spoiler as U.S. shale oil producers would take advantage of the rally by expanding their exploration and production work. An oversupplied market contributed to a sharp decline in crude oil prices, which dropped below $30 per barrel two years ago.
Craig at Platts, meanwhile, said gasoline demand could inch lower and it may be a matter of time before oil prices reverse course.
"The ability to hold above $60 per barrel will likely be tested as refinery demand ebbs," he said. "Another variable to watch will be U.S. crude oil production."
Federal U.S. estimates show total crude oil production hit 9.78 million barrels per day in the week ending Dec. 15, a record high that Craig said was out of reach because of the recent U.S. cold snap.
Ole Hanson, the head of commodity strategy at Saxo Bank, told UPI the rally may have some more legs, but a downturn may be on the horizon.
"No point in fighting momentum, but the risk of a sharp move lower has not gone away," he said.