Oil Makes Biggest Annual Gain Since 2009 Before OPEC Supply Cuts

Updated on
  • OPEC, non-OPEC countries to start reducing output from January
  • U.S. crude inventories increase by 614,000 barrels: EIA report

Oil made the biggest annual gain since 2009 as OPEC and other producing nations plan to start supply cuts next month to reduce swelling global inventories.

Futures rose 52 percent in London this year after closing little changed on Friday. U.S. crude inventories unexpectedly expanded for a second week with a gain of 614,000 barrels last week, the Energy Information Administration reported Thursday. U.S. drillers expanded for a ninth-straight week, boosting active oil rigs to 525, according to data from Baker Hughes Inc. Friday. Shale drillers have added 100 rigs since September, the biggest three-month gain since the boom times of first-quarter 2014.

Brent, the global benchmark, marked its first annual advance in four years in 2016 as the Organization of Petroleum Exporting Countries and 11 other nations push ahead with a plan to cut output. While they’ve managed to buoy sentiment and lift prices from below $30 a barrel early this year, the rising number of rigs in the U.S. and the possibility of members not sticking to output targets are a risk. U.S. inventories remain at the highest seasonal level in more than three decades.

"What a difference a year makes," Phil Flynn, senior market analyst at Price Futures Group in Chicago, said Friday by phone. After doom-and-gloom sentiment closed out 2015, the market is now "probably the most optimistic we are looking going into a new year in energy in many, many years."

Brent for March settlement closed 3 cents lower at $56.82 a barrel on the London-based ICE Futures Europe exchange on Friday. The February contract expired Thursday after losing 8 cents to $56.14. Total volume traded was about 60 percent below the 100-day average.

U.S. Stockpiles

West Texas Intermediate for February delivery settled down 5 cents to $53.72 a barrel on the New York Mercantile Exchange. The contract fell 29 cents to $53.77 on Thursday. Prices are up 45 percent this year.

Spurred by rising oil prices, three dozen U.S. oil and gas producers in the Standard & Poor’s energy index finished the year with gains of more than 40 percent. Some notable names include shale producer Continental Resources Inc., up by 124 percent, the most in the company’s history. International explorer Anadarko Petroleum Corp. gained 44 percent, the most in seven years.

See also: Oil market seen as surprise haven from political risk in 2017

The 614,000-barrel increase in U.S. crude inventories last week compared with a 1.5 million-barrel decline forecast by analysts surveyed by Bloomberg, while American Petroleum Institute data showed a 4.2 million-barrel expansion. Crude production dropped for a second week, while stockpiles at Cushing, Oklahoma, the delivery point for WTI and the nation’s biggest oil-storage hub, grew by 172,000 barrels to 66.4 million.

“2016 was a dramatic oil year,” said Bjarne Schieldrop, chief commodities analyst at SEB Markets. “2016 started very bearishly and ended very bullishly. 2017 is likely to be the opposite, but not quite as dramatic.”

Oil-market news:

  • U.S. refiners exported record amounts of oil products last week, taking market share from struggling competitors in Mexico and the Caribbean.
  • Resolute Energy Corp. ballooned more than ninefold in value this year thanks to a pair of $100 million-plus deals in the nation’s most profitable shale patch. Now it’s aiming to double output in 2017.
  • Energy companies were the year’s best performers on the MSCI World Index after languishing at the bottom of the pile since 2014. Higher prices are making North American shale oil profitable again, doubling the shares of Encana Corp. and Continental Resources Inc.

— With assistance by Ben Sharples, and Tsuyoshi Inajima

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