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Oil prices continue to surge, briefly topping $66 a barrel Thursday as storage shrinks and oil and natural gas companies finalize their 2018 budgets.
Another sharp drop in storage levels likely indicates the U.S. and global markets are working through the global storage glut and returning to more familiar supply-and-demand fundamentals.
Russia and the Organization of Petroleum Exporting Countries continue to hold global supply in check with their agreement to scale back production, but oil demand in the United States and worldwide also is continuing to grow.
As a result, U.S. commercial storage declined by another 1.1 million barrels in the week ending Jan. 19, settling at 411.6 million barrels, according to a report the U.S. Energy Information Administration released Wednesday. The storage is down 16 percent from 488.3 million barrels one year ago.
The drop is much sharper in Cushing, home to the country's largest commercial storage hub. Cushing's storage measured in at 39.2 million barrels last week, down 3.2 million barrels from the previous week and off 38 percent from 63 million barrels in November 2017.
Oil prices also have been boosted by a weakening dollar, which this week reached a more than three-year low compared to other currencies.
Domestic benchmark West Texas Intermediate crude — which is priced in Cushing — gained 36 cents Thursday to $65.98. The price has gained almost 50 percent from just more than $44 a barrel in June 2017.
International benchmark Brent crude added 41 cents Thursday to $70.94 a barrel.
Natural gas gains
Natural gas prices also are gaining ground. The colder-than-normal winter has led to deeper-than-average storage withdrawals, and forecasters are predicting another wave of cold weather next week.
The benchmark natural gas price slipped 6 cents Thursday to $3.45 per thousand cubic feet, but still is up 31 percent since Christmas.
While cold weather has driven up natural gas prices in recent weeks, the price is likely to soon stabilize again, the EIA said in a report Thursday.
The price has spent much of the past 18 months restrained between $2.80 and $3.40 per thousand cubic feet. The government said Thursday the price likely will average near $2.88 in 2018 and $2.99 in 2019.
"Lower prices in 2018 and 2019 reflect EIA's expectation of increased natural gas production and relatively flat consumption," the report stated.
Natural gas consumption is expected to increase slightly in both 2018 and 2019, with combined residential and commercial use to grow by about 1.3 billion cubic feet per day in 2018 and remain near that level in 2019, the report stated.
We'll find out more about domestic oil and natural gas production over the next month. The major integrated oil companies are scheduled to begin releasing their 2017 earnings and 2018 budgets in early February, with independent producers set to detail their reports by the end of February.
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