Oil Rises as U.S. Stockpiles Seen Falling While OPEC Starts Cuts

LAGOS (Capital Markets in Africa) – Oil rose amid estimates that U.S. crude stockpiles declined, adding to signs that global crude markets are tightening as OPEC implements an agreement to cut production.

Futures climbed as much as 1.2 percent in New York after tumbling 2.6 percent Tuesday. U.S. inventories probably dropped by 2.25 million barrels last week, according to a Bloomberg survey before an Energy Information Administration report Thursday. Libya, exempt from the OPEC deal to cut supply, is increasing output from its biggest oil field after two years of internal conflict.

Oil last year capped its biggest annual gain since 2009 as the Organization of Petroleum Exporting Countries and 11 nations from outside the group agreed on a plan to reduce production. While OPEC member Kuwait has already cut output and non-member Oman said it would curb supply this month, rising production in Libya could potentially blunt the impact.

“This is OPEC working,” Jason Gammel, an analyst at Jefferies Group LLC, said in a Bloomberg television interview. “The fundamentals are in much closer alignment.”

West Texas Intermediate for February delivery rose as much as 63 cents to $52.96 a barrel on the New York Mercantile Exchange and was at $52.72 at 12:37 p.m. in London. Total volume traded was in line with the 100-day average. The contract lost $1.39 to close at $52.33 on Tuesday, dropping the most since Dec. 14. Prices rose 45 percent last year.

U.S. Stockpiles
Brent for March settlement added as much as 69 cents, or 1.2 percent, to $56.16 a barrel on the London-based ICE Futures Europe exchange. The contract slid $1.35 to $55.47 a barrel on Tuesday. Prices advanced 52 percent in 2016, the first gain in four years. The global benchmark crude traded at a premiumof $2.20 to March WTI.

Narrowing spreads between the price of monthly Brent futures indicated that international oil markets are tightening. The discount on the first-month Brent contract to those for settlement a year ahead shrank to the smallest in more than two years, to about $1.50 a barrel, ICE data show.

See also: OPEC’s oil cuts deal shifts focus to compliance

U.S. crude stockpiles are at 486 million barrels, the highest seasonal level in more than three decades, according to weekly data compiled by the Energy Information Administration since 1982. The forecast decline would be the first drop in three weeks.