Oil pulls back from gains; OPEC says glut nearly gone

NEW YORK: Oil prices hit highs not seen since 2014, but later gave back gains following a swift rally over the last week, built on the ongoing drawdowns in global supply and as Saudi Arabia looks to push prices higher.

OPEC producers told Reuters on Thursday the inventory overhang has largely disappeared, even as production in the United States increases.

Traders said speculators continue to bet on further upside, expecting potential supply disruptions and further drawdowns, driven by strong demand. Investors are eyeing the $70 level, but said that would likely face resistance, particularly as the speed and magnitude of the recent rally would augur for selling pressure before long.

"I do think we could see $70 pretty quick, but I want to caution that maybe we'll see the market level out a little bit in a few weeks," said Phil Flynn, analyst at Price Futures Group in Chicago.

U.S. West Texas Intermediate (WTI) crude futures were down 15 cents at $68.33 as of 1:27 p.m. EDT (1727 GMT), after earlier hitting $69.56, the highest since Nov. 28, 2014. WTI has gained nearly 8 percent in the last eight days of trading.

More than 700,000 contracts changed hands on CME Group's New York Mercantile Exchange on Thursday, compared with a daily average of about 615,000 contracts.

Brent crude futures were up 96 cents at $74.44. The global benchmark touched $74.74 a barrel, the highest since Nov. 27, 2014 - the day OPEC decided to pump as much as it could to defend market share.

OPEC's Joint Technical Committee, meeting this week in Jeddah, found that inventories in developed nations in March were at just 12 million barrels above the five-year average, according to a source familiar with the matter.

Since the outset of the late 2016 agreement to reduce supply, reached by the Organization of the Petroleum Exporting Countries and non-members including Russia, the inventory glut has largely been eliminated, OPEC sources said in Saudi Arabia on Thursday.

However, Oman's oil minister, Mohammed bin Hamad Al Rumhi, on Thursday said he still thinks the oil market is oversupplied.

Reuters reported on Wednesday that Saudi Arabia would be happy for crude to reach $80 or even $100 a barrel, viewed as a sign that Riyadh will not seek changes to the supply pact.

In the United States, commercial crude stocks fell close to the five-year average of about 424 million barrels. Gasoline and distillate stocks also fell, and refinery usage has been at highs not seen for this time of year in 13 years, according to the U.S. Energy Information Administration.

"Product demand was strong, products (inventories) were lower, crude was lower - it was really across the board supportive," said Robert Yawger, director of energy futures at Mizuho.

Also supporting prices is the possibility that the United States might reimpose sanctions on Iran, OPEC's third-largest producer, which could result in further supply reductions from the Middle East.