Oil advanced after the biggest annual gain since 2009 as output cuts by Kuwait signaled OPEC and other producing nations started trimming production to stabilize the market.
Futures rose as much as 0.9 percent in New York after increasing 45 percent last year. OPEC member Kuwait has cut output by 130,000 barrels a day to about 2.75 million a day, Al-Anba newspaper reported, citing Kuwait Oil Co. Chief Executive Officer Jamal Jaafer. Drillers targeting crude in the U.S. added active rigs for a ninth week, boosting the number to the highest in about a year, according to data from Baker Hughes Inc. on Friday.
Oil climbed for the first time in three years in 2016 as the Organization of Petroleum Exporting Countries and 11 nations from outside the group agreed on an output cut plan, effective Jan. 1, to reduce bloated global inventories. In the U.S., the world’s biggest consumer, crude stockpiles remain at the highest seasonal level in more than three decades.
“It’s understood that countries like Kuwait, who are close to Saudi Arabia, are expected to diligently implement the output cuts, but it’s those nations such as Iraq and Russia that are the ones the market is mostly concerned about,” said Hong Sung Ki, a Seoul-based commodities analyst at Samsung Futures Inc. “Once oil reaches $60 a barrel, increasing rigs in the U.S. will be the biggest factor that will limit oil from rising further.”
West Texas Intermediate for February delivery gained as much as 48 cents to $54.20 a barrel on the New York Mercantile Exchange and was at $54.03 at 2:40 p.m. in Singapore. There was no trading Monday because of the New Year holiday. Total volume traded was about 42 percent below the 100-day average.
Brent for March settlement was 32 cents higher at $57.14 on the London-based ICE Futures Europe exchange. Prices climbed 52 percent last year, the most since 2009. The global benchmark traded at a premium of $2.18 to March WTI.
See also: Gulf energy companies reduce borrowing 26% as oil prices surge
OPEC nations and non-members including Russia and Mexico have agreed to trim output by about 1.8 million barrels a day. Iraq will start implementing cuts by reducing heavy and medium grades, the nation’s oil minister Jabbar al-Luaibi told Kuwaiti daily al-Jarida.
“If we see ongoing evidence of the production cuts, it will have a positive impact on the market,” said Ric Spooner, a chief market analyst at CMC Markets in Sydney. “A big factor to watch over the coming months will be the response of shale oil to the supply cuts.”
Drillers in the U.S. increased the rig count by two to 525 last week, the highest level since January 2016, according to Baker Hughes. Russia pumped 11.2 million barrels a day in December, according to data from the energy ministry.