Prices turned up after a report from Bloomberg said Kuwait is telling customers to expect less oil, Phil Flynn, senior market analyst at Price Futures Group, told MarketWatch.
State-run Kuwait Petroleum Corp. has told customers that it will implement cuts on vessel loadings starting Jan. 1, according to Bloomberg, following the recent agreement among major oil producers to curb output at the start of the year.
“Despite skepticism surrounding the historic OPEC/non-OPEC accord, there are signs early on that OPEC compliance may start at a record high,” said Flynn.
Tyler Richey, co-editor at The 7:00’s report, meanwhile, linked oil’s turnaround to the day’s expiration of crude-oil options.
January West Texas Intermediate crude CLF7, +0.55% rose 34 cents, or 0.7%, to $51.38 a barrel on the New York Mercantile Exchange. February Brent crudeLCOG7, +0.61% tacked on 49 cents, or 0.9%, to $54.39 a barrel on the ICE Futures exchange in London.
Prices had been set to finish at their lowest levels in a week as the Federal Reserve’s decision to raise interest rates for the first time in 12 months strengthened the dollar and energy traders fretted over recent data showing that the Organization of the Petroleum Exporting Countries’ output has continued to hit record highs.
The Fed announced a decision Wednesday to raise interest rates for the first time in a year. At the same time, the Fed’s so-called “dot plot” showed the central bank has now penciled in three rate hikes in 2017 instead of two under its prior forecast.
The Fed “not only raised interest rates but increased their outlook for rate hikes in the new year,” said Flynn. Fed Chairwoman “Janet Yellen and her band of Fed elves decided to send a message that the economy was strong enough to get three rate hikes in the new year.”
“That caused a big drop across the commodity complex such as gold and silver and ultimately, oil,” he said.
The U.S. dollar has strengthened following the news, “which is typically a bearish signal to the oil market as the commodity is primarily traded in dollars, making it relatively more expensive for traders in other currencies,” said Joseph George, commodity analyst at Schneider Electric.
Richey noted that Thursday marks the expiration of January crude oil options. Oil’s downward price move early Thursday “was all about getting to $50, then we saw a combination of short covering and speculative longs stepping in to defend that psychological level.”
Meanwhile, OPEC’s monthly report released Wednesday showed that the group increased its output by about 150,000 barrels a day in November to 33.87 million barrels a day.
In order for OPEC to reach its goal agreed on Nov. 30 to cap the group’s production at 32.5 million barrels a day, the group will have to cut 1.37 million barrels, more than the 1.2 million barrels originally envisioned, making it harder for the group to make good on its promises, said Capital Economics in a note.
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Natural-gas futures Thursday also reversed its earlier course to trade lower as traders weighed support from a bigger-than-expected weekly drop in the commodity’s U.S. inventories against pressure from recent forecasts for warmer weather.
The Energy Information Administration said supplies of natural gas dropped by 147 billion cubic feet for the week ended Dec. 9. Analysts at Citi Futures had forecast a fall of 124 billion cubic feet.
January natural gas NGF17, -0.50% was down 9 cents, or 2.5%, to $3.45 per million British thermal units after trading as high as $3.589.