Increase in oil prices in Europe

Opec, the oil exporters club, last year pulled back on production to put a floor under the price. Now, their concern is that they need to put a ceiling on it.

The price of that familiar benchmark barrel of Brent crude oil, from the waters off Aberdeen, has been rising in recent days, reaching $69.30 on Wednesday.

It was at $45 last July. It dipped to $30 two years ago. But in summer 2014, it was at $115.

Good news for oil producers, after three very tough years. Not so much for oil consumers. Forecourt prices are clearly on the rise.

So, some questions. Will the price keep pumping upwards? What impact does this have on the industry and on tax revenue in Britain? And (an old favourite, this) on the case for or against Scottish independence? But first…

Will it continue?

That’s where the other side of the market fundamentals come in: supply.

Opec pulled back output to bolster the price, and for the past year, it has had the desired effect. The price of Brent crude bobbed happily around the $50-$60 zone.

The agreement to continue that supply constraint throughout 2018, agreed with non-Opec Russia, seems to have bolstered the price more than expected. The Opec market modelling many not have foreseen the strength of global demand feeding through from growth.

But there are market analysts who don’t see the current price as being supported by the data they’re looking at.

And the Iranian energy minister has given verbal warning that Opec is not happy about the price nearing $70 — the first sign that the cartel could take action to lower it, by turning the taps on.

To answer the question, a key number to watch is the Baker Hughes land rig count. That company has been counting US drilling rigs since 1944, sending investors a signal of industry activity.

Across the US, the count is up by by 259 in the past year to 924 by 5 January. The last year’s growth has been fastest in the south. The Texas rig count has risen by 127 since the start of last year, to 454. In the state of New Mexico, it is up by 39 to 76.

Shale fracking drillers are back at work because the price is now high enough to justify the investment. They can quickly push up production. The US government’s energy analysts have pushed up their forecast of output by four times in the past few months.

It’s reckoned it could top 11 million barrels per day, or more than a ninth of global production.

You might think Opec should welcome higher prices: what they don’t welcome at all is a higher US market share.

It gives you some sense of the turnaround in that part of the industry if you look at the share price of Glasgow-headquartered Weir Group, which is a leading supplier of fracking equipment. That was at 848 pence in January 2016. Today, it’s trading in London at around 2300 pence.

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