By Neanda Salvaterra and Jenny W. Hsu
Oil prices edged up on Wednesday as investors bet that major oil producers will stick to their deal to cut output next year and help rebalance the market.
While trading remained muted ahead of the holidays, crude prices have been bolstered in recent weeks by expectations that the Organization of the Petroleum Exporting Countries and some external producers will stick to a deal to reduce the global oil supply by almost 2%.
Brent crude, the global oil benchmark, rose 0.4% to $55.58 a barrel on London's ICE futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures contracts for February delivery were trading up 0.5% at $53.56 a barrel.
"The market is up because there are people out there who believe that OPEC members will be able to maintain their agreed production cuts and that they will be able to enforce them," said Georgi Slavov, the global head of energy research at Marex Spectron.
OPEC has an uneven track record for adhering to production quotas, causing some doubt over whether the cuts will fully materialize.
Mr. Slavov said the market "overreacted" to the OPEC deal and sees tough times ahead as the cartel may find it difficult to enforce the quotas when the deal goes into effect on Jan. 1.
Moreover, Russia is among 11 non-OPEC producers that agreed to cuts along with the cartel and yet Moscow aggressively increased its output in November, calling into question the country's commitment to the deal. Russia is the world's top crude producer, and has pledged to cut 300,000 barrels a day.
While Russia is expected to substantiallyraise its mineral extraction tax for next year, the crude export duty is set to decrease, "making crude exports in January more attractive vs. this month," said JBC Energy in a research note.
Crude prices have also received support from data showing a drop in U.S. crude inventories. The American Petroleum Institute reported that U.S. crude stocks fell by 4.1 million barrels in the week ended Dec. 16, while gasoline stocks fell by 2 million barrels and distillates dropped by 1.5 million barrels.
According to a Wall Street Journal survey of 13 analysts and traders, U.S. crude stockpiles likely fell by 2.3 million barrels. They estimated gasoline stockpiles to have grown by 1.1 million barrels and stockpiles of distillates, which include heating oil and diesel, to have fallen by 900,000 barrels.
Official data from the U.S. Energy Information Administration is due later Wednesday.
Investors will also be looking at the production data to determine if the recent price rally has prompted more U.S. shale-oil producers to ramp up output--a move that would undermine the latest efforts by OPEC and some external oil producers to rebalance the market.
Last week, the number of active oil rigs in the U.S. rose by 12 to 510. Since its trough in late May, U.S. producers have added 194 oil rigs, a jump of 61%, according to Goldman Sachs.
With prices holding steady above $50 a barrel, analysts say U.S. shale producers will be more eager to open the spigots wider.
Investors will also be watching for China's final November oil data. The report was scheduled to be released Wednesday but the government said in an email it had postponed the publication, without elaborating.
In its preliminary report, China said crude imports last month rose 18% from the previous year to 32.35 million metric tons, or roughly 7.9 million barrels a day.
Nymex reformulated gasoline blendstock--the benchmark gasoline contract--rose 0.25% to $1.60 a gallon. ICE gasoil changed hands at $490.25 a metric ton, down $1.25 from the previous settlement.
Write to Neanda Salvaterra at firstname.lastname@example.org and Jenny W. Hsu at email@example.com
(END) Dow Jones Newswires
December 21, 2016 06:24 ET (11:24 GMT)
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