Oil traded near the highest since July last year, spurred by optimism that OPEC and 11 other producing nations will cut production as promised in January to prop up prices.
Futures rose an eighth session in New York after closing on Tuesday at the highest since July 2, 2015. Iraqi Oil Minister Jabbar al-Luaibi said his country was committed to cutting output by 200,000 to 210,000 barrels a day from the beginning next month, Kuwait’s state-run news agency KUNA reported. Venezuela will cut 95,000 barrels a day of production starting Jan. 1, according to the country’s oil ministry.
Oil has climbed since the Organization of Petroleum Exporting Countries agreed last month to curb production for the first time in eight years. The market is now shifting focus to the group’s compliance toward the targeted reductions.
Money managers have reduced their bets on falling West Texas Intermediate crude prices to the lowest level since August 2014 in anticipation of reduced supply. The rally has encouraged drilling of new wells in the U.S. shale patch.
“We’re seeing more of an urgency and willingness by the participants in the cuts than has been the case in the past,” Mark Watkins, the Park City, Utah-based regional investment manager for the Private Client Group at U.S. Bank, which oversees $136 billion in assets, said by telephone. “If there’s greater than usual compliance with production cuts in January, that could set the tone for the oil price going forward into 2017.”
WTI for February delivery rose 21 cents, or 0.4 percent to $54.11 a barrel at 11:29 a.m. on the New York Mercantile Exchange. The contract climbed 1.7 percent to settle at $53.90 on Tuesday. Total volume traded was about 52 percent below the 100-day average. Prices are up 46 percent this year.
Brent for February settlement rose 29 cents, or 0.5 percent, to $56.38 a barrel on the London-based ICE Futures Europe exchange. Prices on Tuesday advanced 1.7 percent to $56.09, the highest close since July 2015. The global benchmark traded at a $2.27 premium to WTI.
“The $50 to $60 area is the sweet-spot range for oil in 2017,” Cavan Yie, senior equity analyst at Manulife Asset Management Ltd. in Toronto, said by telephone. “There’s been talk of the U.S. production response defeating this rally, but I think the threat has been overstated.”
A monitoring committee consisting of some OPEC nations and non-members will meet on Jan. 21-22 in Vienna, said Kuwait Oil Minister Essam Al-Marzouk, KUNA reported. OPEC Secretary-General Mohammad Barkindo has earlier said the meeting would take place on Jan. 13 in Abu Dhabi.
Global crude inventories should return to equilibrium, stabilizing the market, as the agreed cuts go into effect, Venezuelan Oil Minister Eulogio Del Pino said Tuesday on state television. Brent should stabilize between $60 and $70 a barrel as inventories return to equilibrium, Del Pino said.
U.S. crude stockpiles probably fell by 1.5 million barrels last week, according to a Bloomberg survey before an Energy Information Administration report Thursday. Inventories of gasoline and distillate fuel, a category that includes diesel and heating oil. probably rose.