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Oil prices hit 2 1/2 year high on strong economic data, Iran tensions

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Oil prices rose to their highest levels since mid-2015 on Wednesday.  Shana photo by Raza Rostami.

Oil prices up as Iran protests continue

Oil prices rose to their highest levels in 2 1/2 years as investors were encouraged by strong economic data from the United States and Germany and the continuing unrest in Iran.

By 1:06 p.m. EST, Brent crude was up $1.05 to $67.62/barrel, the highest since May 2015.

US WTI had risen $1.12 to $61.49/barrel, just shy of the session high of $61.50, the highest since June 2015.  The Canadian Crude Index rose to $39.24, up 2.99 per cent.

In Iran, the country’s elite Revolutionary Guards deployed forces to three provinces to quell anti-government protests, according to their commander.  21 people have died in protests in the last six days.

“While the Iran tensions are certainly a factor, the slew of remarkably strong economic data today is also forcing the rally,” John Kilduff, partner at Again Capital LLC told Reuters.

“Record low unemployment in Germany and the sky-high ISM manufacturing reading reinforces that demand for energy will continue to grow in robust fashion … It’s a multi-asset rally, which crude oil is caught up in today.”

According to Reuters, Germany’s unemployment rate hit a record low last month and in the US, factory activity rose by more than expected.  Both are signs of strong economic momentum.

As well, manufacturing and construction reports also boosted expectations for a strong US economy this year and the Dow Jones Industrial Average hit a record high.

The recent cold snap on the US East Coast has bumped up US heating oil prices.  A number of tankers carrying diesel and heating oil from Europe were diverted to meet demand.

Ole Hansen, head of commodity strategy at Saxo Bank told Reuters that “multiple but temporary supply disruptions”, including the Forties and Libyan pipeline outages as well as the protest in Iran “helped create a record speculative long bet”.

Hansen says with the pipeline outages and Iranian protests not impacting oil production at this time, he believes oil prices could fall in early 2018, especially with increasing US output.

“It is only a matter of time before the 10 million barrel per day (b/d) (US) production target will be reached,” Hansen told Reuters.

According to the US Energy Information Administration, US crude production rose by almost 16 per cent since mid-2016 and hit 9.75 million b/d by the end of 2017.

Russia’s output has also risen to an average of 10.98 million b/d from 10.96 million b/d in 2017 and 10.72 million b/d in 2015.

However, in a note, Commerzbank said that despite the increase in Russia’s production, it is still in compliance with its OPEC supply cut pledge.

 

 

 

Posted in: Energy Financial

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