Oil Rises as Output Cuts Seen Curbing Glut, Dollar Rally Stalled

Updated on
  • Dollar slips against euro after rising to highest since 2003
  • Goldman Sachs says supply to return to normal by midyear

Oil Heads for a Weekly Loss on U.S. Dollar Strength

Oil rose for the first time in three days after the dollar’s advance stalled and attention shifted back to projected production cuts.

Futures rose 2 percent in New York. Prices dropped the past two days as the dollar climbed against major peers after the Federal Reserve raised interest rates, which curbed the appeal of commodities to investors. Goldman Sachs Group Inc. increased its second-quarter oil price forecasts and predicted inventories would return to normal levels by the middle of 2017 as OPEC production cuts ripple through the market.

Oil has traded near $50 a barrel since the Organization of Petroleum Exporting Countries agreed Nov. 30 to trim output for the first time in eight years. A broader deal reached last weekend in Vienna with 11 non-members including Russia encompasses countries that pump about 60 percent of the world’s crude.

"The main reason we’re moving higher today is that the dollar is mostly flat," said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $6.1 billion. "OPEC is getting the benefit of the doubt and there’s hope that the economy will grow strongly next year, which will be good for demand."

West Texas Intermediate for January delivery rose $1 to close at $51.90 a barrel on the New York Mercantile Exchange. Total volume traded was about 19 percent below the 100-day average at 2:40 p.m. Prices closed at the highest since July 2015 on Tuesday and ended the week up 0.8 percent.

See also: WTI-Brent spread widens as crude inventories surge at U.S. hub

Brent for February settlement increased $1.19, or 2.2 percent, to $55.21 a barrel on the London-based ICE Futures Europe exchange. The North Sea oil climbed 1.6 percent this week. The global benchmark crude closed at a $2.26 premium to February WTI.

Greenback Moves

The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, was little changed after rising 1.9 percent the prior three days. The greenback surged Thursday, which makes commodities priced in the currency less attractive to investors.

"This is a range bound market," Thomas Finlon, director of Energy Analytics Group in Wellington, Florida, said by telephone. "We went down to test $50 yesterday and it held. The market is being moved by two major forces, the OPEC and non-OPEC agreements to cut supply are supportive while the strength of the dollar will limit how high prices can go."

Goldman raised its second-quarter WTI price forecast to $57.50 a barrel from $55, and its Brent forecast for the same period to $59 from $56.50, according to a report Friday. If stockpiles held by countries in the Organisation for Economic Co-operation and Development fall, which the analysts see happening in the second quarter of next year, prices could rise.

Oil-market news:

  • Nigeria’s Pengassan union will begin withdrawing members from Exxon Mobil Corp. oil platforms and shut down production as early as the weekend if the company doesn’t reinstate workers, said Paul Edoigbe, a union leader in Eket.
  • OPEC’s deal to cut production and boost prices gives oil companies the opportunity to start investing again -- if they still have the risk appetite, according to analysts and investors.
  • North Sea crude in floating storage fell by more than 50 percent in November from a month earlier as tankers that held crude for as many as four months find homes, ship-tracking data compiled by Bloomberg show.

— With assistance by Grant Smith

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