(Bloomberg) -- Oil is on track for the biggest yearly gain since 2016 as declining U.S. crude stockpiles eased oversupply concerns, and heightened geopolitical risk gave the commodity a boost.
Futures in New York held near a three-month high Monday. American crude supplies fell by 5.47 million barrels in the week ended Dec. 20 for a third straight decline, according to data released Friday. Iran on Monday seized a fuel tanker in the Strait of Hormuz while the U.S. on Sunday launched air strikes on five Iranian-backed bases in Iraq and Syria, stoking fears of geopolitcal risk creeping back into the supply picture.
“Oil seems to be supported by the large drawdown from last week’s inventory numbers, some geopolitical risk factors rising over the weekend and this morning, as well as a weak dollar,” says Phil Flynn, senior markets analyst at Price Futures Group.
Oil is poised for its best year in three, after a breakthrough in U.S.-China trade talks and a commitment by the Organization of Petroleum Exporting Countries and its allies to deepen output cuts lifted prices. Hedge funds remain upbeat on crude, increasing bullish wagers on Brent oil to a seven-month high, despite comments from Russia that OPEC+ would discuss ending supply curbs next year.
West Texas Intermediate for February delivery traded 4 cents lower to $61.68 a barrel on the New York Mercantile Exchange. Prices are also set for the biggest monthly gain since January.
Brent crude for February settlement added 28 cents to close at $68.44 a barrel on London’s ICE Futures Europe exchange. The global benchmark crude traded at a $6.76 premium to WTI.
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While concern lingers over rising production from non-OPEC nations including the U.S. and Brazil, some of those worries were countered by the drop in American crude inventories which was the lowest level in two months. The decline came despite the first dip in exports since late November, according to Energy Information Administration.
“Crude draws and positive market sentiment have been price-supportive in recent weeks,” said UBS Group AG analyst Giovanni Staunovo. “On the one hand, market participants are looking at rising tensions in Iraq and Libya, but on the other hand production has not been hit by those tensions.”
--With assistance from James Thornhill and Saket Sundria.
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