U.S. West Texas Intermediate (WTI) crude CLc1 was at $54.65 a barrel, up 27 cents, or 0.5 percent, and close to February highs. It is up almost 30 percent since 2017-lows in June.
Bullish sentiment has been fuelled by an effort this year lead by the Organisation of the Petroleum Exporting Countries (OPEC) and Russia to hold back about 1.8 million barrels per day (bpd) in oil production to tighten markets.
While compliance was low during the first half of the year, supplies have been reduced significantly since.
OPEC’s October output fell by 80,000 bpd to 32.78 million bpd, putting adherence to its pledged supply curbs at 92 percent, up from September’s 86 percent.
Russia is also seen to be in compliance with cutting its output by around 300,000 bpd below October 2016 levels of 11.247 million bpd.
Trade data shows that global oil markets have been slightly undersupplied during the past quarters, resulting in fuel inventory drawdowns.
Factoring in supply disruptions in Iraq due to fighting and the United States as a result of hurricanes, the market looks slightly undersupplied going into next year, traders said.
What is unclear is how OPEC, Russia and the other countries involved in withholding production will exit the supply-cutting deal.
The pact runs to March 2018, and Saudi Arabia and Russia support extending the agreement to potentially cover all of next year.
Should participants after that return to full capacity and U.S. output also grow further, a supply glut could quickly return. “We could rapidly ... go from a predicted deficit of around 260,000 barrels to a surplus of close to 1.5 million barrels. Prices would undoubtedly collapse as a consequence,” said Matt Stanley, a fuel broker at Freight Investor Services. Another key factor will be U.S. output, which has risen by almost 13 percent since mid-2016 to around 9.5 million bpd. C-OUT-T-EIA
“U.S. crude oil production is 410,000 bpd below the April 2015 peak of 9.62 million bpd. We expect production to surpass this level before year-end,” Barclays bank said.
Reporting by Henning Gloystein; Editing by Joseph Radford