Oil prices spiked on Friday, January 20, buoyed by a weaker U.S. dollar and signs of the market tightening after major oil producers agreed to cut output.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in February CLG7, +2.34% rose 61 cents, or 1.2%, to $52.73 a barrel.
March Brent crude LCOH7, +2.09% on London’s ICE Futures exchange advanced 57 cents, or 1.1%, to $54.73 a barrel.
Oil prices gained even as the U.S. dollar started edging higher ahead of President-elect Donald Trump’s inauguration speech on Friday, MarketWatch reports.
The WSJ Dollar Index BUXX, +0.17% , which measures the U.S. currency against 16 others, was up 0.3% at 92.06, after slipping earlier in the session. A weaker dollar tends to give foreign traders stronger buying power.
An oil glut has depressed prices for more than two years. The price collapse prompted a group of 20 oil producers from within and outside the Organization of the Petroleum Exporting Countries to agree on an output cut last year.
Even though the deal only went into effect this month, the International Energy Agency said OPEC production has slowed, declining by 320,000 barrels a day to 33.09 million barrels in December.
“Early indications suggest a deeper OPEC reduction may be under way for January, as Saudi Arabia and its neighbors enforce supply cuts,” the IEA said.
The contraction in inventory levels has added to the encouraging news. IEA data showed oil storage in industrialized nations of the Organization for Economic Cooperation and Development fell in November.
“If the pattern continues it would be fair to assume a pickup in demand combined with lower production in early 2017 will see prices higher,” said Stuart Ive, a client manager at OM Financial.
However, rising oil prices in the wake of an output cut may prompt more U.S. shale producers to return to the oil patches. Seen as the marginal producer, higher U.S. output could easily wipe out OPEC’s efforts to remove surplus barrels.
That worry was reflected in the price movement Thursday. Oil prices pared gains after data from the U.S. Energy Information Administration showed crude stockpiles rose by 2.3 million barrels in the week ended Jan. 13. The increase upended analysts’ expectations for a much smaller expansion.
