Oil hits 16-month high as focus shifts to non-OPEC cuts

By Rakteem Katakey, Ben Sharples on 12/5/2016

NEW YORK (Bloomberg) -- Oil traded at a 16-month high as OPEC prepared to meet non-members in an effort to secure additional output cuts following last week’s surprise deal to curtail supply.

Futures rose as much as 1.4% in New York. Members of the Organization of Petroleum Exporting Countries will meet producers from outside the group in Vienna on Saturday to discuss the supply curbs, according to OPEC Secretary General Mohammad Barkindo. In the U.S., drillers added rigs for a fifth week to reach the highest level since January, data from Baker Hughes showed.

Oil has climbed more than 15% since OPEC agreed Wednesday to reduce output by 1.2 MMbpd from January, while non-member Russia pledged a cut of as much as 300,000 bpd. Attention is now shifting to OPEC’s compliance and efforts to persuade other producers to cooperate. The deal can balance the market, but “we tend to cheat,” former Saudi Arabian Oil Minister Ali Al-Naimi said at an event in Washington, D.C.

“There is a reasonable degree of clarity as to how individual OPEC members will respond to the group’s recent decision,” JBC Energy GmbH said in a note. “The same cannot be said about Russia, let alone other non-OPEC producers” such as Oman, while U.S. output may rebound next year, it said.

West Texas Intermediate for January delivery rose as much as 74 cents to $52.42/bbl on the New York Mercantile Exchange and was at $52.16 as of 11:33 a.m. London time, the highest since July 2015. The contract gained 1.2% to $51.68 on Friday. Total volume traded Monday was 51% above the 100-day average. Prices rose 12% last week.

Rig Count

Brent for February settlement advanced 59 cents, or 1.1%, to $55.05/bbl on the London-based ICE Futures Europe exchange, trading at a $1.93 premium to WTI for the same month. The global benchmark contract increased 52 cents to $54.46 on Friday.

U.S. drillers increased the rig count by three to 477 last week, according to data from Baker Hughes on Friday. Companies have now added 161 rigs nationwide since an expansion started at the end of May.

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