Crude oil price hits $70 per barrel Monday despite surging production by the United States, which is offset by the production cuts led by the Organisation of Petroleum Exporting Countries (OPEC) and Russia.
The international benchmark Brent crude futures rose above $70 per barrel earlier in the session before trading at $69.69 per barrel.
The United States West Texas Intermediate (WTI) crude futures were at $64.22 per barrel but Reuters reported that trading was relatively slow due to a national holiday in the United States.
After falling from an all-time high of $147 per barrel in July 2008, Brent crude price had hit a peak of $115 per barrel in June 2014 before the excess inventory in the oil market forced the price down to $27 per barrel in February 2016.
WTI also reached a peak of $105 per barrel in June 2014 before the sharp drop in oil prices.
However, a production-cutting pact between the OPEC, Russia and other producers has given a strong tailwind to oil prices, with both benchmarks hitting levels not seen since December 2014.
OPEC, together with Russia and a group of other producers, last November extended an output-cutting deal to cover all of 2018.
The cartel had at their November 30, 2017 meeting agreed to extend oil output cuts until the end of 2018 as part of the global efforts to eliminate excess oil supply that had dogged oil prices in the markets since 2014.
The current deal, under which OPEC and non-OPEC producers are cutting supply by about 1.8 million barrels per day, expires in March 2018.
OPEC is cutting output by even more than it promised and the restraint is reducing oil stocks globally, a trend most visible in the United States, the world’s largest and most transparent oil market.
Growing signs of a tightening market after a three-year rout have bolstered confidence among traders and analysts that prices can be sustained near current levels.
The decision to extend the production cuts has seen crude oil prices rising, but a major factor countering efforts by OPEC and Russia is US oil production which has soared and is fast approaching 10 million bpd.
A number of analysts have warned that the 13 per cent rally since the start of 2018 could peter out in the short term due to global refinery maintenance, which could limit crude demand and rising North American production.
With oil prices above $60, Russia had earlier before the extension of the output cuts, expressed concern that an extension for the whole of 2018 could prompt a spike in crude production in the United States, which is not participating in the deal.
Russia needs much lower oil prices to balance its budget than OPEC’s leader Saudi Arabia, which is preparing a stock market listing for national energy giant Aramco this year and would hence benefit from pricier crude.
However, some in the producers’ group fear current price gains could prompt shale companies to flood the market.
US crude oil production is expected to hit 10 million barrels per day (bpd) this month, leaving only Russia and Saudi Arabia at higher levels.
US energy companies added 10 oil rigs in the week to January 12, taking the number to 752, energy service firm Baker Hughes said at the weekend.
That was the biggest increase since June 2017.
In Canada, energy firms almost doubled the number of rigs drilling for oil last week to 185, the highest level in 10 months.