The oil price, on Monday, increased because of the anticipation of a tighter supply of crude in 2017 following the Organization of the Petroleum Exporting Countries (OPEC) and other producers’ decision to cut the output to boost up prices.
Brent crude futures, which is the international standard for oil prices, were trading at $55.57 per barrel, up by 36 cents (0.7%), at 4:01GMT, from their last close.
The U.S. West Texas Intermediate (WTI), crude oil futures, rose by 43 cents (0.8%) to $52.33 per barrel.
The higher prices, according to traders, in front-month crude futures were because of the expectations about a tighter market.
The OPEC and other producers, who were led by Russia, reported cutback of close to 1.8 bpd in oil production starting in January 2017 as an effort to help prices to reduce excessive global overproduction that has led to output outstrip consumption for more than two years.
ANZ bank stated on Monday, “Investors now expect a somewhat high level of agreement together with the agreements for production cuts; prices should then be well supported.”
“Saudi Arabia stated its eagerness to reduce the production to under 10 million bpd if necessary (currently standing at 10.5 bpd), to help limit the risk of the deal,” stated U.S. bank Morgan Stanley (NYSE: MS) on Monday. They added that part of the non-compliance risk to the deal to cut the output in 2017 was initiated by Iraq, as they increased their January loadings versus December.
According to ANZ bank, part of the weakness in the U.S. dollar also led to the improvement in the oil investor sentiment.
The dollar dropped 0.8 percent to a range of other major currencies since it reached the highs of 2002 last week.
The changes in the dollar can influence the oil demand since they impact the fuel prices for each country that uses its currency domestically.
Regardless of this, the factors that affected the market that remain relatively low prevent prices from rising higher.
The U.S. did not take part in the production cut deal, and its drilling for new oil has increased over seven weeks.
There was an addition of 12 oil rigs in the week of December 16, amounting to a total of 510. This amount is the highest since January, still below 541 rigs a year ago, stated Baker Hughes, energy services firm on Friday.
“Following its trough on May 27, 2016, producers added 194 oil rigs (61% extra) in the U.S.,” according to U.S. bank Goldman Sachs (NYSE: GS).
Resulting from this, the U.S. oil production is rising from under 8.5 bpd in July to approximately 8.8 million bpd by mid-December.