Oil hits $70 a barrel for the first time in three years

No let-up in crude prices before March Report

Oil prices edged higher on Tuesday, with USA crude touching its highest since December 2014, supported by OPEC-led production cuts and expectations that US crude inventories have dropped for an eighth week in a row.

Brent crude continued to hover near $70 per barrel on Wednesday with prices up 15 percent since early December, but some cautioned the oil market could be overheating.

A day before the release of the weekly inventory figures, the EIA shook markets with the latest edition of its Short-Term Energy Outlook, in which the authority forecast USA oil production would reach 10.3 million barrels daily this year and rise further to 11 million bpd in late 2019.

USA crude futures rose 61 cents, or 0.97%, to $63.57 a barrel on the New York Mercantile Exchange - the highest settlement since December 9, 2014. The best grades of USA crude are now priced at almost $63 a barrel, high enough to convince shale oil producers to expand drilling and production.

Brent for March settlement gained as much as 51c, or 0.8%, to $68.29 a barrel on the London-based ICE Futures Europe exchange after adding 0.2% on Monday. On November 31, 2016, the oil cartel Opec and non-Opec countries committed to cut down supplies by 1.8 million barrels a day till the end of 2018.

It will also be a boon for BHP Billiton Limited (ASX: BHP) as it will likely get a higher price for its unconventional oil and gas assets that it is shopping around.

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"OPEC is cutting output by even more than it promised and the restraint is reducing oil stocks globally, a trend most visible in the United States, the world's largest and most transparent oil market".

The rise in oil prices means further accretion to the Excess Crude Account, into which the country saves the difference between the market price of oil and the budget benchmark to provide a cushion when oil prices fall or extra cash is needed for spending on infrastructure. "It is premature to expect further upside to be sustainable, at least until the market gains a better grasp of the pace of USA production growth".

The Brent-WTI price spread averaged more than $3.33/b in 2017.

EIA forecast mostly flat crude oil prices and increasing production in 2018 and 2019 in a latest update this week. "But then the U.S. will increase its production, and the more expensive the oil, the greater the extraction in the USA, which will exert negative pressure on prices", the expert warned.

Worldwide, the agency sees oil consumption rising by about 1.7 million bpd in both 2018 and 2019, led by China and India. US crude oil production is forecast to average 10.3 million b/d in 2018, marking the highest annual average production in USA history, surpassing the previous record of 9.6 million b/d set in 1970.

"We expect Brent prices to move further higher to more than $75 due to an increase in demand".

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