Oil prices rose for a third straight day on Friday, after OPEC’s agreement to cut output for the first time in eight years.
U.S. crude futures rose 62 cents, or 1.21%, to $51.62 a barrel on the New York Mercantile Exchange, its highest settlement since July, 2015. Brent, the global benchmark, gained 52 cents, or 0.96%, to $54.46 on London’s ICE Futures Exchange.
Crude prices have surged since the Organization of the Petroleum Exporting Countries agreed to pull back their output by 1.2 million barrels a day. “At this point I don’t think too many people are willing to stand in front of it,” said Ric Navy, senior vice president for energy futures at RJ O’Brien & Associates.
Oil’s advances stalled overnight, however, with U.S. crude futures pulling back to $50.18 as investors took profits following the dramatic rally. But crude prices resumed their march higher later, as the market looked set to hold on to most of its recent gains.
U.S. crude futures gained 12.2% this week—the largest weekly percentage gain since 2009. But market participants say crude’s rally could be running out of steam.
“I think it’s getting close to the end of its rope,” said Mark Waggoner, president of Excel Futures. “I see it getting tired and falling back. I just don’t see this as a game changer when they’re pumping as much as they are.”
The deal to cut production is expected to take effect in January, and participating oil-producing nations will reassess in six months with an option to extend the accord for another six months.
If the deal is fully observed, it could shift the market into a deficit as early as the first half of next year. Brent prices could move higher to average between $55 and $60 a barrel in 2017, said Simon Flowers, chief analyst at consultancy Wood Mackenzie. “However, this does depend on OPEC being very careful to meet the terms of the agreement,” he cautioned.
Skepticism over members’ compliance with production quotas remains, as members have cheated their quotas in the past by underreporting or producing beyond their allotted limits.
Moreover, the OPEC supply action could cause some oil producers to lose market share as oil producers who aren’t participating in the deal ramp up their output.
“It is a dangerous game that Saudi Arabia is playing,” said Michael Cohen, the head of energy commodities research at Barclays. “Should prices rise too high then the amount of shale oil that comes into the market will eventually start to cut into their market share.”
The U.S. put three more oil rigs back to work in the latest week, bringing total active rigs to 477, the most since late January, according to Baker Hughes.
Gasoline futures gained 1.21 cents, or 0.78%, to $1.5591 a gallon. Diesel futures rose 1.02 cents, or 0.62%, to $1.6581 a gallon.