Oil rallied Friday, with U.S. and global benchmark prices tallying their highest settlements in more than two years as a drop in the U.S. oil-rig count hinted at an output slowdown.
The “final straw” that prompted strong gains near the session’s end was “the big drop in U.S. rig counts,” said Phil Flynn, senior market analyst at Price Futures Group. That combined with recent data showing near record crude demand and falling U.S. oil inventories to fuel a price rally.
A report from Bloomberg that Nigerian militants will end a cease-fire, which could lead to a resumption of attacks on oil installations, “added more upside risk into the weekend,” he said.
December West Texas Intermediate crude oil CLZ7, +2.13% rose $1.10, or 2%, to settle at $55.64 a barrel, marking its highest settlement price since July 2, 2015, according to FactSet data. It ended around 3.2% higher for the week, up a fourth-straight week.
Brent for January LCOF8, +2.42% gained $1.45, or 2.4%, to finish at $62.07 a barrel, with the contract also ending a more than two-year high and posting a 3.2% rise for the week.
“OPEC rhetoric gets a lot of the attention, [but] increasing global demand expectations and the pause in U.S. output growth beginning back in August are two other key pillars to the bullish fundamental argument for oil right now,” Tyler Richey, co-editor of the Sevens Report, told MarketWatch.
The Organization of the Petroleum Exporting Countries deal, however, is “a very important development as the market is finally starting to have faith in the efficacy of the cartel again,” he said.
Meanwhile, Russian energy minister Alexander Novak said on Thursday the output deal between OPEC and a group of non-cartel countries led by Russia could be extended beyond March 2018, if needed. Traders widely expect OPEC to prolong the deal when the organization meets in Vienna on Nov. 30.
Oil prices are also getting a boost from solid global economic growth that is helping lift demand and reduce the oversupply that has weighed on oil prices in recent years. Data Friday revealed that the U.S. ISM services index in October climbed to a 12-year high.
“We’ve seen global growth clearly much stronger than we would have expected 12 months ago,” said Jason Thomas, director of research at the Carlyle Group. “It’s not just faster growth, it’s faster growth in areas that happen to be oil consuming,” like trade and industrial activity, he said.
From the same time a year ago, WTI oil prices have climbed 25%, while Brent has rallied 34%.
“Currently there is no sign of anything that might spoil the mood of optimists: U.S. oil stocks are falling and representatives of those countries that have committed themselves to cutting production do not tire of confirming the market’s expectation that the agreement will be extended,” analysts at Commerzbank said in a note on Friday.
The higher prices for oil have sparked worries that the U.S. which isn’t part of the output-cut deal, will find incentive to boost output, but there are indications that production growth has slowed. Baker Hughes BHGE, +0.26% said Friday that number of active U.S. rigs drilling for oil fell by 8 to 729 this week. That was the fourth weekly decline in five.
Among energy products Friday, December gasoline RBZ7, +1.06% tacked on 1.3% to $1.793 a gallon, with the contract up 4.4% from a week ago. December heating oilHOZ7, +1.67% ended at $1.887 a gallon, up 1.8% for the session and 1.1% higher for the week.
Natural gas NGZ17, +2.01% climbed 1.7% to $2.984 per million British thermal units, trading around 0.7% higher for the week.