OIL RISES AS TRADERS RELY ON PROMISED OUTPUT CUTS

Oil prices closed out a fourth consecutive week of gains, as confidence in lower production levels outweighed building oil products in storage.

Light, sweet crude for February delivery settled up 23 cents, or 0.4%, on Friday at $53.99 a barrel on the New York Mercantile Exchange. Prices fluctuated between gains and losses throughout the day, going as high as $54.32 and as low as $53.46. Brent, the global benchmark, settled up 21 cents, or 0.4%, at $57.10 a barrel.

Prices were buoyed by Royal Dutch Shell PLC’s decision to close down the 140,000-barrel-a-day Trans-Niger Bonny Light pipeline. The company cited a fire for the shutdown, but the situation highlights the continuing struggle with attacks on Nigeria’s oil infrastructure.

“The Nigerian government is reportedly restarting to pay peace allowance to militants. This will probably ease things, but it will take time before world refiners regain confidence about the reliability of Nigerian supplies,” said oil analyst Olivier Jakob from Switzerland-based Petromatrix.

For the week, both U.S. crude and Brent gained 0.5%.

Oil prices had been choppy after the U.S. Energy Information Administration on Thursday reported a significant drawdown of 7.1 million barrels from stockpiles in the week of Dec. 30 due to lower imports, upending the market’s expectations for an increase or a smaller decrease.

However, the large growth in distillates and gasoline stocks—of 10.1 million barrels and 8.3 million barrels, respectively—is considered bearish and a reflection of poor demand, said analysts at Société Générale.

The data also showed U.S. production of crude grew by 4,000 barrels a day in the same week, a figure that is likely to rise in the postholiday period.

As U.S. production continues to creep up, members of the Organization of the Petroleum Exporting Countries are starting to pull back on output to meet the 32.5 million barrels-a-day ceiling pledged at the cartel’s Nov. 30 meeting.

Saudi Arabia, the de facto leader of the cartel, took the lion’s share of the cut. The Wall Street Journal reported Thursday the kingdom made good on its pledge by cutting its January daily production by 468,000 barrels.

“Saudi Aramco has made it clear that it plans to cuts production and this will hopefully convince other producers to fully comply with the promised cuts,” said Edward Bell, an analyst from the Dubai-based Emirates NBD bank.

Some market observers believe prices could reach $60-$70 a barrel later this quarter if the cuts are fully enforced, though OPEC has a spotty record of adhering to past production quotas.

Gasoline futures settled down 0.2% at $1.6340 a gallon and diesel futures settled up 0.5% at $1.7032 a gallon.

– WSJ

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