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Oil price hits highest level since 2014 as surplus shrinks

Bloomberg logo Bloomberg 5/16/2018 Jessica Summers

Video by CNBC

Crude settled at the highest since 2014 as shrinking U.S. oil, gasoline and diesel stockpiles signaled tightening global supplies.

Futures ended Wednesday’s session 0.3 percent higher in New York after fluctuating between gains and losses. An International Energy Agency forecast for less robust energy demand overshadowed a U.S. government tally showing record overseas demand for American crude and declining domestic stockpiles of oil and fuels.

“People are starting to wonder if we are going to see a very tight market during the summer when the driving season really hits” in North America, said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.

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Crude this month climbed to levels not seen in more than three years as global markets tightened and geopolitical tensions in the Middle East heightened supply concerns. Despite surging U.S. crude production, surpluses stored in terminals and tankers have been shrinking.

“Another week of draws across the board is certainly positive for current prices,” said Matthew Beck, managing director of an $8 billion oil and natural gas portfolio at John Hancock Financial Services Inc. in Boston. The continued withdrawals “reflect a fairly tight market.”

West Texas Intermediate crude for June delivery edged up 18 cents to settle at $71.49 a barrel on the New York Mercantile Exchange.

Brent for July settlement rose 85 cents to end the session at $79.28 on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a $7.72 premium to WTI for July, the largest for the front-month spread since 2015.

The U.S. Energy Information Administration said crude stockpiles fell by 1.4 million barrels last week. At the same time, gasoline stockpiles shrank by 3.79 million and distillates fell by 92,000. Helping to contribute to the crude draw was a 689,000 barrel-a-day jump in exports.

Aside from lowering its demand outlook, the Paris-based IEA said production outside OPEC will grow by 1.87 million barrels a day this year, or 85,000 a day more than previously thought.

“We saw some expectations for demand actually come down a little bit. That’s just due to higher crude oil prices and the thought that that might curb gasoline demand a little bit globally,” said Brian Kessens, who helps manage $16 billion in energy assets at Tortoise.

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