By Timothy Puko
Crude flipped to small gains at the start of traditional trading hours in the U.S., where traders are still feeling bullish about recent changes in the oil market.
Prices have been on the way up, gradually, since the Organization of the Petroleum Exporting Countries and other global exporters agreed last month to cut output. And even losses Wednesday -- one of only three losing sessions in two weeks -- couldn't drag the market below recent lows, which momentum-based traders see as a positive sign for prices, brokers said.
Light, sweet crude for February delivery recently gained 63 cents, or 1.2%, to $53.12 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, rose 68 cents, or 1.3%, to $55.14 a barrel on ICE Futures Europe.
OPEC had agreed last month to cut output by 1.2 million barrels a day, equivalent to around 1% of global supply. A group of big oil producers outside the cartel, including Russia, agreed to join them and scale back their output by another 558,000 barrels a day.
That has kept oil above $50 a barrel for more days this month than any other since July 2015, but many investors also have been skeptical of OPEC. Its spotty record for adhering to production quotas is casting doubt over whether the cuts will fully materialize after they are supposed to start in January.
"There's a lot of skepticism about OPEC, but I still look at it as innocent until proven guilty. This is a solid support level," said Bill Baruch, senior strategist at Chicago brokerage iTrader.
Because the market is holding so firmly above $50, that will keep the momentum going, Mr. Baruch and other brokers said. When prices fall as they did in the prior session, but don't break below recent lows, traders who buy and sell based on price patterns will see that as a positive sign that bullish momentum is still strong and likely to move prices higher.
Many are also broadly expecting prices to rise in the new year once OPEC cuts become apparent. It could take weeks or months for definitive proof that OPEC is following through, and then for their cutbacks to show up in declining inventories around the world, but many do expect that to happen eventually and for prices to rise when it does.
That could keep speculators buying now and prices gradually rising in the meantime, brokers said. Scott Shelton, broker at ICAP PLC, predicts prices will be at $57 a barrel in the weeks to come.
"People will want to buy the market in the new year, and they're not going to get it at a cheap price. The market is smart enough to know that," he said.
Others, however,point out threats that could undermine that momentum. Traders will be watching to see whether producers will underreport production, a behavior that surfaced in past attempts to rein in global output. Another risk is that U.S. producers could offset some of the cuts, if they ramp up production to take advantage of the higher prices triggered by the agreements.
"At this stage the forecast for a pickup in U.S. shale production is relatively subdued, but there's an underlying sense that they could surprise," said Ole Hansen, head of commodity strategy at Saxo Bank.
When oil prices rallied after the production-cut agreements, there was a surge of hedging by U.S. shale producers, meaning they locked in their oil sales price for next year above $50 a barrel.
In addition, the number of rigs for U.S. production has been rising steadily since the summer, although the lag between the time it takes to drill a well to seeing full production means that this additional volume has yet to reach the market.
Gasoline futures recently lost 0.1% to $1.6033 a gallon. Diesel futures gained 1.5% to $1.6653 a gallon.
Sarah McFarlane and Jenny W. Hsu contributed to this article.
Write to Timothy Puko at email@example.com
(END) Dow Jones Newswires
December 22, 2016 10:57 ET (15:57 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.