Oil retreats from $70 ceiling on fading geopolitical risk premium

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Oil prices retreated from big gains on Thursday, but still managed to settle at three-year highs after the global Brent benchmark hit $70 a barrel on signs of tightening supply in the United States.

On Wednesday, the U.S. Energy Information Administration said crude inventories fell nearly 5 million barrels to 419.5 million barrels last week. In particular, US crude oil production is expected to increase more quickly than any other country.

The EIA said it expects the share of USA total utility-scale electricity generation from natural gas to rise from 32% in 2017 to 33% in 2018 and to 34% in 2019, as a result of low natural gas prices.

"But market participants could also use the sharp drop in production as an excuse to buy", said Carsten Fritsch, oil analyst at Commerzbank AG in Frankfurt, Germany. West Texas Intermediate, the US benchmark, was up 0.66 percent to $62.14 per barrel. While Brent averaged $54 per barrel in 2017, the December average was $64, up $2 per barrel from November, “the highest monthly average since November 2014, ” and only the fourth time in the past 36 months that Brent has averaged more than $60.

Brent crude futures (LCOc1) were at $69.10 a barrel, 28 cents above their last close. The session high for the global benchmark was US$69.37, highest since May 2015.

Singapore:Oil prices on Friday slipped away from December-2014 highs reached the previous day.

Oil prices have surged more than 13 per cent since early December, and there are indications of overheating.

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There are conflicting views about how sustainable the increase in USA production is, and to what extent it actually exists. An oversupplied market contributed to a sharp decline in crude oil prices, which dropped below $30 per barrel two years ago. Also, the dollar fell in a broad sell-off after a report that China was ready to slow or halt its USA treasury purchases.

"When it comes to hedge fund buying in general the commodities trade is front-and-center and that momentum is building for oil", said Rob Thummel, portfolio manager at energy investment manager Tortoise in Leawood, Kansas.

USA production growth is estimated at 1.5 million bpd in 2018 and 1 million bpd in 2019, with Canada and Brazil expected to contribute combined growth in both years of some 400,000 bpd.

The U.S. Energy Department expects production will blow through 10 million bpd in the next few months, en route to 11 million bpd by next year, rivaling Russian Federation and Saudi Arabia.

Taking advantage of their competitive prices, US crude oil exports are rising, including to faraway Asia.

Despite the prospect of flat crude oil prices into the future, EIA forecasts total US crude oil production will increase to an average of 10.3 million b/d in 2018, up 1.0 million b/d from 2017.