Crude oil prices hit new multi-year highs yesterday as production cuts led by the Organisation of Petroleum Exporting Countries (OPEC) and healthy demand helped to balance the market, but analysts warned of possible overheating.
Reuters reported that a broad, global market rally, including stocks, has also been fuelling investment in crude oil futures.
U.S. West Texas Intermediate (WTI) crude futures rose to $63.67, the highest since December 9, 2014, before settling at $63.60 a barrel.
Brent crude futures also hit $69.37, the highest since May 2015 before closing at $69.33 a barrel.
OPEC, together with Russia and a group of other producers, last November extended an output-cutting deal to cover all of 2018.
The cuts were aimed at reducing a global supply overhang that had dogged oil markets since 2014.
OPEC is cutting output by even more than it promised and the restraint is reducing oil stocks globally, a trend most visible in the U.S., the world's largest and most transparent oil market.
The cartel had at its November 30, 2017 meeting agreed to extend oil output cuts until the end of 2018 as part of the global efforts to eliminate excess oil supply in the international market.
The current deal, under which OPEC and non-OPEC producers are cutting supply by about 1.8 million barrels per day (bpd) in an effort to boost oil prices, expires in March 2018.
The decision to extend the production cuts saw crude oil prices rising, with the global benchmark Brent trading at over $69 per barrel yesterday.
However, a major factor countering efforts by OPEC and Russia to prop up prices is U.S. oil production, which has soared more than 16 per cent since mid-2016 and is fast approaching 10 million bpd.
Only OPEC kingpin Saudi Arabia and Russia produce more.
With oil prices rising above $60, Russia had expressed concern that an extension of the cuts for the whole of 2018 could prompt a spike in crude production in the U.S., which is not participating in the deal.
Russia needs much lower oil prices to balance its budget than OPEC's leader Saudi Arabia, which is preparing a stock market listing for national energy giant Aramco this year and would hence benefit from pricier crude.
However, some in the producers' group fear current price gains could prompt shale companies to flood the market.
U.S. crude oil production is expected to hit 10 million bpd next month, leaving only Russia and Saudi Arabia at higher levels.
American Petroleum Institute data on Tuesday showed U.S. crude inventories falling by 11.2 million barrels in the week leading to January 5.
Additionally, the U.S. Energy Information Administration (EIA) raised its 2018 world oil demand growth forecast by 100,000 bpd from its previous estimate.
Oil prices have risen more than 13 per cent since early December, and there are indications of overheating. Analysts warned that the market is ignoring U.S. production increases at its peril.
Meanwhile, some of the world's largest listed energy companies are facing a lawsuit for "billions of dollars" after New York City accused them of contributing to climate change.
The city also said it would start analysing ways to divest its pension funds, which have $189 billion in assets, of fossil fuel companies "in a responsible way that is fully consistent with fiduciary obligations".
New York City mayor, Mr. Bill de Blasio, said the city was seeking damages from BP, Chevron, ConocoPhillips, ExxonMobil and Royal Dutch Shell to "protect New Yorkers from the effects of climate change", according to the Financial Times.
"We're bringing the fight against climate change straight to the fossil fuel companies that knew about its effects and intentionally misled the public to protect their profits," said de Blasio.
"As climate change continues to worsen, it's up to the fossil fuel companies whose greed put us in this position to shoulder the cost of making New York safer and more resilient."
The lawsuit adds to the pressure on the fossil fuel companies, which are already under scrutiny from investors about the impact of climate policies on their future earnings.
The same five companies are fighting court cases in California brought by cities and counties over the harm they expect to suffer from climate change.
Exxon in a court filing this week described those actions as "abusive law enforcement tactics and litigation" that were attempting to stifle the company's right to "participate in the national dialogue about climate change and climate policy".
The New York mayor's office accused the energy companies of being aware of the effects that burning fossil fuels would have on the planet's atmosphere, citing "recently uncovered documents".
"They deliberately engaged in a campaign of deception and denial about global warming and its impacts, even while profiting from the sale of fossil fuels and protecting their own assets from the effects of rising seas and a changing climate," the city said.
Exxon claims that the campaign arguing that it understood the risks of climate change in private while minimising them in public was "a complete fabrication that was conceived, paid for, and executed by anti-oil and gas activists".
It said reporting on the issue had "cherry-picked statements from company officials and misrepresented the context of other events and statements, giving an incorrect impression about our corporation's approach to climate change".
Shell, which has said it was setting its strategy for a world of tightening constraints on fossil fuel use, said in a statement: "We believe climate change is a complex societal challenge that should be addressed through sound government policy and cultural change to drive low-carbon choices for businesses and consumers, not by the courts."
Conoco and BP declined to comment on the action.
In the wake of the Paris agreement to limit global warming and weather events such as superstorm Sandy, governments globally have focused heavily on tackling climate change.
President Donald Trump, however, has pulled the U.S. out of the Paris agreement.
Pension funds globally have increasingly begun pulling out of fossil fuel companies over concerns about their impact on climate change and fears that they could become "stranded" -- or worthless -- if governments across the world introduce stricter rules to tackle global warming.
Mr. de Blasio and comptroller Scott Stringer will submit a "joint resolution to pension fund trustees" to begin the process of divesting.
New York City's five pension funds hold $5 billion in the securities of over 190 fossil fuel companies.