OIL ENDS HIGHER ON GLOBAL SUPPLY DECLINES, BUT US RIG COUNT SPIKES

Oil futures climbed on Friday and for the week, boosted by signs of tighter supply after major oil producers agreed to cut output.

Prices, however, finished off the day’s highs after data showed a hefty weekly rise in the number of active U.S. rigs drilling for oil. The increase raised concerns that rising output from the U.S. could derail efforts by other major producers to rebalance global oil supply and demand.

On the New York Mercantile Exchange, February West Texas Intermediate crudeCLG7, +1.87%  rose by $1.05, or 2%, to settle at $52.42 a barrel after trading as high as $52.90. The contract, which expired at the day’s settlement, finished last Friday at $52.37 so it ended around 0.1% higher for the week, according to FactSet data. March WTI crude CLH7, +2.15%  settled at $53.22, up $1.10, or 2.1%, ending just above last Friday’s finish of $53.15.

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.

Read: Rising U.S. shale-oil output threatens OPEC’s production pact

On Friday, data released by Baker Hughes BHI, +0.03% showed that the number of active U.S. rigs drilling for oil jumped higher by 29 to 551 rigs this week. Last week, the number declined, but that followed a 10 consecutive weekly increases. The total active U.S. rig count, which includes oil and natural-gas rigs, rose by 35 to 694, according to the data.

The oil rig count stands at its highest level in 14 months, according to Price Futures Group’s Phil Flynn.

Citi Futures noted that the number of oil rigs have climbed 8% since last year, but is still down by nearly 66% from their peak in October 2014.

James Williams, energy economist at WTRG Economics, referred to the rig report as “very bearish,” but said expectations for a stronger economy as President Donald Trump takes office provided support for oil Friday.

But Trump is also expected to ease restrictions on oil drilling, which could contribute to higher domestic production.

Meanwhile, major producers around the world have been cutting output as part of an agreement that kicked in at the start of the year.

Saudi Arabia’s Energy Minister Khalid al-Falih, speaking at the World Economic Forum in Davos this week, has reportedly said that there has been very strong compliance among members and nonmembers of Organization of the Petroleum Exporting Countries to the production cut agreement that kicked in at the start of the year. News reports also quote him as saying Friday that 1.5 million barrels a day of the roughly 1.8 million in cuts pledged by OPEC and non-OPEC countries have already been taken out of the market.

In a monthly report issued this week, the International Energy Agency said OPEC production has slowed, declining by 320,000 barrels a day to 33.09 million barrels in December. The OPEC agreement calls for a member output ceiling of 32.5 million barrels.

A committee created to monitor oil-producer compliance with the promised cuts is scheduled to meet this weekend.

“Since there [are] mixed expectations on how much of the cuts will come to fruition, any comments one way or the other will sway markets any particular day,” Brian Youngberg, senior energy analyst at Edward Jones, told MarketWatch.

Rounding out action in the energy market, February gasoline RBH7, +2.05%  tacked on 3.2 cents, or 2.1%, to $1.567 a gallon, ending about 2.8% lower for the week, and February heating oil HOG7, +1.51%  rose 2.8 cents, or 1.7%, to $1.646 a gallon, but it still saw a weekly decline of roughly 0.3%.

February natural gas NGG17, -5.05%  fell 16.4 cents, or 4.9%, to $3.204 per million British thermal units, for a weekly loss of about 6.3%.

– http://www.marketwatch.com/

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