For the first time since 2014, oil reached $71 a barrel on Thursday, buoyed by OPEC-led supply cuts, a record-breaking run of declines in U.S. crude inventories and a weak U.S. dollar.
The Organization of the Petroleum Exporting Countries and allies including Russia began restricting supplies in 2017. The recent and involuntary decline in Venezuela’s output has contributed to the impact of the curbs.
Brent crude, the international oil benchmark, reached $71.20 a barrel, the highest level seen since December 2014. At 1053 GMT, Brent fell back to $70.81, still sporting gains of 28 cents. U.S. crude increased to $66.44, also the highest since December 2014, before reducing to $66.05, still up 44 cents.
“The continuous fall in U.S. oil inventories and the prolonged weakness in the U.S. dollar have done the trick,” said Tamas Varga, referring to oil reaching a new high.
The supply cuts led by OPEC and Russia, which began at the start of last year, have a target to eliminate excess supply that had brought down prices. Presently, the curbs are scheduled to run throughout the end of this year.
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Another indication that the excess supply is diminishing, U.S. crude inventories dropped for a record 10th straight week to the lowest since February 2015, according to Wednesday’s reported official figures.
Also sustaining oil, the U.S. dollar reached its lowest since December 2014 against a basket of other currencies. According to U.S. Treasury Secretary Steven Mnuchin a weaker dollar was “good for us” he said on Wednesday.
A weaker dollar makes dollar-denominated commodities less expensive for other currency holders which has a habit to support oil prices.
“The depreciation of the U.S. dollar is also allowing oil prices to make further gains,” said Carsten Fritsch, a bank analyst. “Almost every commodity class is being driven up by this extended dollar fall.”
The increased output of U.S. shale oil is raining on the oil rally’s parade, as higher prices inspire more investment in increasing supplies. U.S. crude oil production is predicted to exceed 10 million barrels per day (bpd) in February, according to the U.S. government’s Energy Information Administration.