Oil prices rise to two-year highs

06 December 2010

Global oil market balance expected to tighten

Oil prices climbed to their highest levels for two years during the week ending 3 December, hitting a high of more than $89 a barrel.

The US’ benchmark West Texas Intermediate (WTI) contract traded at $89.190 a barrel on 3 December, its highest level since early October 2008, and up $5.48 a barrel from nine days earlier when it was valued at $83.71 a barrel.

European crude rose even further, breaking the $90-a-barrel level and closing the week on $91.42 a barrel for the December Brent contract, up $5.68 a barrel on the previous reported figures of $85.74.

The 12-crude basket of exports from the member states of the international oil producers group, Opec saw more modest rises, averaging $84.34 a barrel on 3 December. This is up only $2.91 a barrel on the previous week, which settled at $81.43 a barrel.

According to analysts at Barclays Capital, prices bounced back on easing concerns over European sovereign debt risks and more encouraging macroeconomic data on global manufacturing activity in November.

“The accumulation of upside demand surprises, robust economic indications and better inventory trends in the US over the past two months have provided enough fundamental strength to curb the extreme demand pessimism that has dominated throughout the year,” says the 3 December Barclays report.

A tighter oil market balance should lead to a greater degree of volatility in pricing, but the outlook for further price increases is expected to be slow, with Opec producers maintaining enough flexibility to manage price rises.

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