Brent Near Two-Year Highs

Oil prices steadied on Tuesday after a week of gains, as the prospect of increasing US exports dampened bullish sentiment that has driven Brent to more than two-year highs of over $60 per barrel.

Benchmark Brent was down 10 cents at $60.80 a barrel, not far off July 2015-highs reached earlier this week, and up around 37% since their 2017 lows last June. US light crude was 10 cents lower at $54.05, still near its highest since February and also not far off its highest for more than two years, CNBC reported.

Iraq’s move to increase oil exports from its southern ports by 220,000 barrels per day to 3.45 million bpd to make up for supply disruptions from its northern Kirkuk fields also weighed on prices, traders said. Traders and brokers said investors were adjusting positions after price rises of around 5% in October. Despite generally upbeat sentiment, some analysts also warned the market was overbought, having risen too far, too fast.

“US shale output could keep a lid on prices over the medium to long-term,” said Shane Chanel, equities and derivatives adviser at ASR Wealth Advisers.

US light crude has been trading at a discount of around $6.70 to Brent—making it attractive to refiners. US crude production has risen almost 13% since mid-2016 to 9.5 million barrels per day.

“The large differential has opened the door on regional arbitrage, driving a spike in US crude exports over recent weeks,” BMI Research said in a note.

Despite Tuesday’s price dip, sentiment remained positive, fueled by a pledge by the Organization of Petroleum Exporting Countries, Russia and other exporters to hold back about 1.8 million barrels per day in oil production to tighten markets.

While the actual cuts are not quite as high as the target, analysts say overall compliance has been strong.

“The OPEC deal compliance has been very firm, with rates averaging 86% since January,” according to Bank of America Merrill Lynch. The pact runs through March 2018, but Saudi Arabia and Russia have voiced support to extend the agreement. OPEC is scheduled to meet officially at its headquarters in Vienna, Austria, on Nov. 30.

“The fear of oversupply could easily turn to a fear of undersupply, if inventories keep declining like they have been and demand continues to grow,” said William O‘Loughlin, investment analyst at Rivkin Securities.