US oil prices hit highest since mid-2015 on surprise output drop

WTI crude futures were at US$60.30, up 0.8 per cent from their last close, the highest since June 2015

Oil drilling rigs which have been stacked in Dickinson, North Dakota. US oil prices hit their highest levels since mid-2015. Andrew Cullen/Reuters

US oil prices hit their highest levels since mid-2015 on the final trading day of the year as an unexpected fall in American production and a fall in commercial crude inventories stoked buying.

In international markets, Brent crude oil futures also rose, supported by ongoing supply cuts by top producers Opec and Russia as well as strong demand from China.

US West Texas Intermediate (WTI) crude futures were at US$60.30 a barrel at 0504 GMT, up 46 cents or 0.8 per cent from their last close, the highest since June 2015.

Brent crude futures - the international benchmark - were also up, rising 45 US cents or 0.7 per cent to US$66.61 a barrel. Brent broke through US$67 earlier this week for the first time since May 2015.

Since the start of the year, Brent and WTI have risen by 17 and 12 per cent, respectively, although the price rises from mid-2017 are much stronger, at nearly 50 per cent.

Friday's WTI price rises were driven by a surprise drop in US oil production, which last week dipped to 9.754 million barrels per day (bpd), down from 9.789 million bpd the previous week, according to data from the Energy Information Administration (EIA) released late on Thursday.

US output is still up by almost 16 per cent since mid-2016, but most analysts had expected production to break through 10 million bpd by the end of this year - a level only surpassed by top exporter Saudi Arabia and top producer Russia.

WTI prices were further boosted by a fall in US commercial crude storage levels, which dropped by 4.6 million barrels in the week to Dec 22 to 431.9 million barrels, according to the EIA.

Inventories are now down by almost 20 per cent from their historic highs last March, and well below this time last year or in 2015.

In international markets, China has issued crude oil import quotas totalling 121.32 million tonnes for 44 companies in its first batch of allowances for 2018.

Based on total expected quotas, China's imports - which at around 8.5 million bpd are already the world's biggest - are expected to hit another record in 2018 as new refining capacity is brought online and Beijing allows more independent refiners to import crude.

On the supply side, Brent prices have been supported by a year of production cuts led by the Opec and Russia. The cuts started last January and are scheduled to cover all of 2018.

Pipeline outages in Libya and the North Sea have also been supporting oil prices, although both these disruptions are expected to be resolved by early January.

Consultancy JBC Energy said the Libyan pipeline outages had "no major impact on exports".