Oil hits $70 a barrel for the first time in three years

Prices edged higher as Opec nations and their allies cleared the glut caused by the growth of US shale

Saudi Arabia and some other Opec members are signalling output cuts. AFP

Oil topped $70 a barrel in London for the first time in three years as production cuts by Opec and rising demand whittle away a global surplus.

Brent crude futures, used in the pricing of more than half the world’s oil, rose as much as 1.2 per cent to the highest since December 4, 2014. Prices rallied after the longest stretch of declines in US inventories during winter in a decade.

Oil’s rally shows that the Organisation of Petroleum Exporting Countries and its allies are succeeding in clearing the glut triggered by the growth of US shale oil. Prices have also been supported by concerns that supply disruptions could stem from rising political tensions in Opec members Iran and Venezuela.

“Pretty much all of the fundamental boxes are supportive of the current rally and a bit more,” said Paul Horsnell, head of commodities research at Standard Chartered in London.

Brent for March settlement advanced to $69.90 a barrel on the London-based ICE Futures Europe exchange at 11:28 Eastern time.

With the climb in crude, there are growing signs that Opec could be falling into a trap it had sought to avoid. Rising prices are putting US production on track to rival both Saudi Arabia and Russia, with output likely to exceed 10 million barrels a day as soon as next month and top 11 million before the end of 2019, according to Energy Information Administration forecasts.

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“Seventy dollars is too much,” said Eugen Weinberg, head of commodities research at Commerzbank in Frankfurt. “It’s not completely unexpected, given the price momentum. But there will be a reaction in US shale, and Opec’s strategy will backfire massively.”

Iran has warned that the group risks overheating the market with oil at current levels. Opec’s members are not keen on Brent prices above $60 a barrel because of the potential for more shale output, Iran’s Oil Minister Bijan Namdar Zanganeh said, according to the ministry’s news service Shana.