Oil Trades Near 17-Month High Before Planned OPEC Supply Cuts

Andrey Rudakov/Bloomberg News

Oil traded near the highest since July last year amid optimism OPEC and 11 other producing nations will cut output as promised, helping eliminate a global supply glut.

Futures were little changed in New York after rising a seventh session Dec. 27 to close at the highest since July 2, 2015. Crude inventories should return to equilibrium and prices stabilize as the agreed cuts go into effect, Venezuelan Oil Minister Eulogio Del Pino said Dec. 28 on state television. A monitoring committee consisting of some OPEC nations and nonmembers will meet on Jan. 13 to track compliance with promised supply reductions, according to OPEC Secretary-General Mohammad Barkindo.

Oil has traded near or above $50 a barrel 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 trimmed bets on falling West Texas Intermediate crude prices to the lowest level since August 2014 in anticipation of reduced supply.

“We have now rallied about 20% since late November on the expectation that OPEC and non-OPEC will deliver the promised cuts,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S. “Sooner or later the market will adopt a wait-and-see approach, but not before year-end with so many looking for a high closing price on their books.”

WTI for February delivery rose 11 cents to $54.01 a barrel on the New York Mercantile Exchange at 9:04 a.m. local time. The contract added 88 cents to close at $53.90 on Dec. 27. Total volume traded was about 48% below the 100-day average. Prices are up about 46% this year.

Brent for February settlement rose 30 cents to $56.39 a barrel on the London-based ICE Futures Europe exchange. Prices on Dec. 27 climbed 93 cents to settle at $56.09. Futures have gained 51% this year. The global benchmark traded at a premium of $2.38 to WTI.

Brent prices should stabilize between $60 and $70 a barrel as inventories return to equilibrium, and Venezuela will cut 95,000 barrels a day of production starting Jan. 1, according to Del Pino and the country’s oil ministry.

U.S. crude inventories probably declined by 1.5 million barrels last week, according to a Bloomberg News survey before an Energy Information Administration report Dec. 29. Crude supplies at Cushing, Oklahoma, the delivery point for WTI and the biggest U.S. oil-storage hub, probably climbed by 500,000 barrels last week.

Oil-market news:

• BP Plc will pay A$1.785 billion ($1.3 billion) for Woolworths Ltd.’s network of Australian gas stations in a deal that will cement the London-based oil company as one of the nation’s biggest fuel providers.

• Tanker Valtamed is set to arrive Dec. 28 to load 630,000 barrels of crude at Libya’s Hariga port, according to Adnan Omran, general manager of Al Omran International Maritime Agencies.

• China will raise the gasoline price by 100 yuan a ton and diesel by 95 yuan a ton, according to a statement on the National Development and Reform Commission website.