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Futures Movers: Oil hits 3-year high as U.S. supply and output declines feed rally

Oil prices hit another three-year high on Thursday, buoyed by a pullback in U.S. production and eight weeks of declines in domestic crude stockpiles, as traders awaited the Trump administration’s decision on whether to extend temporary waivers on sanctions against Iran.

Prices for natural gas, meanwhile, were poised for a finish at their highest level in about a week after data showed that supplies of the commodity dropped much more than expected.

On the New York Mercantile Exchange, February West Texas Intermediate crude CLG8, +1.42% rose 94 cents, or 1.5%, at $64.51 a barrel. March Brent crude LCOH8, +0.88% the global oil benchmark, rose 65 cents, or 0.9%, to $69.85 a barrel on London’s ICE Futures exchange. Prices for both benchmarks were poised to mark another finish at their highest since December 2014.

“Oil prices have been undeniably bullish this week despite the lingering concerns over the current bull rally running out of steam,” said Lukman Otunuga, research analyst at FXTM, in a note Thursday. Prices were set for a fourth-straight session climb.

Prices rallied Thursday, a day after the Energy Information Administration reported a drop of 4.9 million barrels in crude inventories for the week ended Jan. 5. That was the eighth-straight weekly decline. The EIA also said total U.S. crude production fell by 290,000 barrels to 9.492 million barrels a day.

“Over the last eight weeks, inventories have drawn by 39.4 million barrels, nearly halving the surplus to the five-year average,” according to Geoffrey Craig, oil futures editor at S&P Global Platts.

Overall, Otunuga said “it is becoming clear that the combination of major supply disruptions, geopolitical risk and growing optimism over OPEC’s supply cuts rebalancing markets, are likely factors behind oil’s impressive resurgence.”

While further upside is “still on the cards amid the current market optimism, it must be kept in mind that rising production from U.S shale has the ability to expose oil to downside risks,” he said.

Analysts have said that the higher oil prices could incentivize cheating by members of the Organization of the Petroleum Exporting Countries, which agreed late last year to extend production cuts through 2018 to drain global stocks. The pact included some non-OPEC countries such as Russia.

Meanwhile, U.S. President Donald Trump is set to review whether to waive or reimpose sanctions on Iran this week, a decision that has implications on Iran’s oil exports.

“It will be very important for the oil market to see what he does with Iran considering that in the past sanctions regime a large portion of exports was disrupted,” said Giovanni Staunovo, commodity analyst at UBS Wealth Management.

The review comes after Iran has faced two weeks of antigovernment protests, after its economy didn’t benefit to the extent expected from the lifting of international sanctions two years ago.

Also on Nymex Thursday, prices for natural gas rallied after the EIA on Thursday said domestic supplies of the commodity fell by 359 billion cubic feet for the week ended Jan. 5. Analysts surveyed by S&P Global Platts forecast a decrease of 337 billion, while the five-year average withdrawal is 169 billion.

A winter storm on the East Coast had been expected to boost supply declines on the back of higher demand for heating fuel.

In other energy products trading on Nymex, February gasoline RBG8, +1.20%  rose 1% to $1.851 a gallon and February heating oil HOG8, +0.58%  traded at $2.091 a gallon, up 0.5%.

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