Oil prices are on track for their biggest annual gain since 2009 after the OPEC grouping and other major producers agreed to cut crude output to reduce a global supply overhang that has depressed prices for two years.
U.S. benchmark West Texas Intermediate (WTI) crude futures were up 6 cents at $53.83 a barrel by 1100 GMT on Friday, while Brent front-month March crude stayed flat at $56.85.
Brent has risen about 50 percent this year and WTI has climbed around 43 percent, the largest annual gains since 2009, when Brent and WTI rose 78 percent and 71 percent respectively.
Oil has more than halved since the summer of 2014, when it was above $100 a barrel. The fall in prices due to oversupply, in part thanks to the U.S. shale oil revolution, was accentuated later that year when Saudi Arabia rejected any OPEC deal to cut output and instead fought for market share.
But a new OPEC agreement to reduce production, struck over three months from September this year, marks a return to the 13-country group’s old objective of defending prices although doubts remain as to its effectiveness in implementation.
In a sign that producers are adhering to the six-month cut starting in January, Oman told some customers it will reduce term allocations by 5 percent in March, but did not say whether the supply reduction would continue after that.
Equally as important to oil prices next year will be the development of demand globally, and major forecasters diverge in their predictions.
“We see a big variation in demand growth assessments for 2017, ranging from +1.22 million bpd (barrels per day) … to +1.57 million b/d,” analysts at JBC said in a note to clients.
“Overall, all forecasters agree that Asia will remain the main engine for demand growth. Yet, there is no consensus on the extent of Chinese and Indian year-on-year demand growth.”
Oil will gradually rise towards $60 per barrel by the end of 2017, a Reuters poll showed on Thursday, with further upside capped by a strong dollar, a likely recovery in U.S. oil output, and possible non-compliance with agreed cuts.
The market on Friday shrugged off an unexpected increase in U.S. crude inventories, which rose 614,000 barrels in the week to Dec. 23, U.S. Energy Information Administration data showed. Analysts had expected a decrease of 2.1 million barrels.
Still, the rise in crude stocks was significantly smaller than in Wednesday’s American Petroleum Institute data that indicated a 4.2-million-barrel build in the same period.