Oil rises as Opec commitment to cuts offsets US output gains

Drilling rigs in Dickinson, North Dakota. Oil has made its best start to the year in five years. Andrew Cullen/Reuters

Oil prices rose on Thursday after a survey showed Opec's commitment to its supply cuts remains in place, even as US production topped 10 million barrels per day for the first time since 1970.

Brent April crude futures were up 53 cents on the day at $69.42 a barrel by 11.50 GMT, while NYMEX crude for March delivery rose 42 cents to $65.15 a barrel.

Brent crude rose by 3.3 per cent in January, its strongest start to the year for five years, in line with a broad rise in other risk-linked assets such as US equities, which hit record highs last month and marked their biggest January increase since 1997.

With investors now pondering which of oil's current key driving forces will prove to be the dominant one - rising US crude output, or Opec's adherence to its supply cuts, the relationship with equities and even the dollar is likely to erode.

"I don’t think it’s durable, that suddenly we see oil and the S&P attached at the hip. They have coincidentally done well and it's profit-taking. But I think their fortunes are going to diverge and this correlation won't survive the test of time," said London Capital Group head of research Jasper Lawler.

"The other factor is that big $70 level in Brent. That is pretty much the top of the range for most forecasts out there. So again, that’s a price level that gives some pause for thought. I don’t think we should go back to 60 but I think probably 65 seems like a logical area to ... start refocusing on the fundamentals of the market versus general sentiment."

Goldman Sachs raised its three-month forecast for Brent to $75 from $62 and its six-month forecast to $82.50 from $75.

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Oil prices are unlikely to advance much above $70 a barrel in 2018, given the tug of war between Opec and the US shale industry, a Reuters poll showed on Wednesday.

US crude oil production in November surpassed 10 million bpd for the first time since 1970, and neared the all-time output record, the Energy Information Administration said on Wednesday.

The EIA also reported the biggest increase in crude oil stocks since March last year, a rise of 6.8 million barrels.

"As oil prices rise, higher shale output is definitely on the market's mind," said Tomomichi Akuta, a senior economist at Mitsubishi UFJ Research and Consulting in Tokyo.

Output by Opec also rose in January from an eight-month low as higher output from Nigeria and Saudi Arabia offset a further decline in Venezuela, a Reuters survey found.

However, adherence by producers included in the deal to curb supply rose to 138 per cent from 137 per cent in December, suggesting commitment is not wavering even as oil prices hit their highest since 2014.