Oil prices rise on expected drop in U.S. inventories

January 4, 2017 10:13 AM

Oil prices ticked higher on Wednesday on expectations that U.S. crude inventories are falling and signs that oil producers will stick to agreed output cuts that took effect this week.

Global benchmark Brent crude futures were up 10 cents at $55.57 a barrel by 1110 GMT (6:10 a.m. ET). The contract reached an 18-month high in the previous session, but a strong dollar has shaved off most of those gains.

U.S. West Texas Intermediate crude futures were trading at $52.42 per barrel, up 9 cents.

"Positive equities and gains in industrial metals this morning, as well as expectations that U.S. crude oil stocks will show a decline ... are ingredients helping to drive a slight gain in Brent crude," said Bjarne Schieldrop, chief commodities analyst at SEB Markets in Oslo.

Weekly U.S. statistics on oil stocks are expected to show a 1.7-million-barrel draw on Thursday, analysts polled by Reuters said.

OPEC member Kuwait also lifted expectations that producers will comply with a deal to reduce oversupply after its state-owned oil producer said on Wednesday it would cut output in the first quarter.

Members of the Organization of the Petroleum Exporting Countries in November agreed their first output cut since 2008 in an attempt to stabilize oil prices.

As part of the deal, Kuwait has to reduce output by 131,000 barrels per day.

An OPEC committee meeting to monitor compliance with the agreement is scheduled for Jan. 21-22 in Vienna.

"Prices are likely to remain volatile until there is evidence that quotas are being adhered to," analysts at Cenkos Securities wrote.

Also reflecting a tightening market, traders expect top oil exporter Saudi Arabia to raise the official selling price for its crude to Asia in February.

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Karolin Schaps, Reuters