Oil Prices Set to Return to Bull-Market Territory

Brent daily chart

At 2:29pm BST, the Brent front month futures contract was down 1.34% or 79 cents to $58.23 per barrel, having spiked by 4% to within touching distance of $60 intraday - it's highest level since July 2015 - before retreating during afternoon European trading.

Turkish President Tayyip Erdogan warned to stop supplies from the pipeline that delivers oil from northern Iraq to support the independence referendum of the Kurdish autonomous region. Some 500,000 barrels of oil per day are exported out of Kurdish Iraq every day.

"The combination of very strong demand, potential greater cohesion among OPEC and growing pains for shale" suggests that the global oil benchmark will maintain its bullish tilt, analysts at Goldman Sachs wrote in a research note. But the meeting ended without agreement on what oil bulls had hoped for most: an extension of OPEC production cuts, that are due to expire in March 2018, till the end of the year.

Dubai and Oman crude oil barrels were also traded at $52.91 and $53.23 in the week leading to September 15 after respectively snowballing by 84 and 85 cents.

Exxon Mobil Corp was the standout at Brazil's first oil auction in two years, signaling strong interest in the country's offshore geology even with oil prices stuck around US$50 a barrel.

The prospect of losing that supply, combined with the 1.8 million barrels a day of supply cuts by the Organisation of the Petroleum Exporting Countries (OPEC) and other non-OPEC producers, has raised supply fears, analysts said.

Oil prices pared losses in post-settlement trade after industry group the American Petroleum Institute reported that USA crude stocks fell last week as refineries boosted output, while gasoline inventories increased and distillate stocks fell.

The age of persistently weak oil prices is nearing its end, with demand booming and a supply squeeze in the offing, according to Trafigura Group.

"The market is apprehensive about pushing [Brent] to $60 a barrel", said Geordie Wilkes, a research analyst at brokerage Sucden Financial Ltd. Mr. Wilkes said some investors worry that sending crude prices too high could incentivize an uptick in USA shale production and exacerbate a global supply glut.

USA crude prices have lagged behind Brent's gains amid a large oversupply exacerbated by Hurricane Harvey, which forced the closure of almost 25% of US refining capacity, Reuters reported.

"In spite of increases from US shale production, that kind of increase is enough to sop up" excess oil supply, Lipow said.

According to his forecasts, Brent oil may return to the level of $55 per barrel already on Thursday.