(Bloomberg) -- Oil rose to the highest close in more than three weeks as the dollar retreated after the Federal Reserve left interest rates unchanged and as evidence mounts that OPEC and its partners are making promised output cuts.
Futures advanced 2 percent in New York. Gains accelerated after the central bank's announcement sent the U.S. currency lower. Russia reduced oil output by 117,000 barrels a day last month, putting it ahead of schedule to fulfill its agreement with OPEC, Energy Minister Alexander Novak said Wednesday. The market shrugged off a government report showing that U.S. crude and gasoline stockpiles climbed last week.
Oil gained almost 15 percent the last two months of 2016 as the Organization of Petroleum Exporting Countries agreed on Nov. 30 to reduce supply, with 11 other nations including Russia joining the deal less than two weeks later. While Middle East producers implement the cuts, U.S. drillers targeting crude have increased the nation's rig count to the highest level since November 2015.
"Anytime the dollar comes under pressure, oil is going to rise," Thomas Finlon, director of Energy Analytics Group in Wellington, Florida, said by telephone. "We would have been up anyway because it looks like OPEC and non-OPEC compliance is quite good. It also helps that nobody is blatantly cheating yet."
West Texas Intermediate for March delivery rose $1.07 to settle at $53.88 a barrel on the New York Mercantile Exchange. It's the highest close since Jan. 6.
Brent for April settlement climbed $1.22 to $56.80 a barrel on the London-based ICE Futures Europe exchange. It was also the highest close since Jan. 6. The global benchmark ended the session at a $2.31 premium to April WTI.
Iraq, OPEC's second-largest producer, cut output by 180,000 barrels a day in January, according to SOMO, the state oil marketing company.
Coming Through
"OPEC appears to be coming through with the cuts," Joe Bozoyan, an equity portfolio manager who helps oversee $5 billion in energy and utility shares at John Hancock in Boston, said by telephone. "We should start to see the market rebalance by the middle of the year."
U.S. crude supplies rose 6.47 million barrels to 494.8 million in the week ended Jan. 27, the highest since August, according to the the Energy Information Administration. That was more than double the 3 million-barrel forecast by analysts surveyed by Bloomberg before the report. Stockpiles at Cushing, Oklahoma, the biggest U.S. storage hub and the delivery point for WTI, fell 1.25 million barrels.
OPEC Compliance
"We're looking beyond the weekly data and looking at OPEC compliance," Brian Kessens, a managing director and portfolio manager at Tortoise Capital Advisors LLC in Leawood, Kansas, who helps manage $16.3 billion in energy assets, said by telephone. "All signs are pointing to strong compliance by OPEC and its partners."
Refineries operated at 88.2 percent of capacity, the lowest since November. U.S. refineries usually start seasonal maintenance programs at this time of year, so that they are up and running before gasoline demand peaks in the summer.
"I'm not too concerned about inventories at this time of year because refiners are performing seasonal maintenance," Bozoyan said.
Gasoline stockpiles rose 3.87 million barrels to 257.1 million, the highest since February 2016. Inventories of distillate fuel, a category that includes diesel and heating oil, increased 1.57 million barrels to 170.7 million, the highest since October 2010.
Oil-market news:
- President Donald Trump's energy policies are good for the industry and Saudi Arabia sees no problem with growth in U.S. oil output as long as it's in line with demand, Saudi Energy Minister Khalid Al-Falih said in an interview with the BBC.
- Shale and other unconventional oil supplies will cap prices at $65 a barrel through 2022, Citgroup's Ed Morse said in report.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net. To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net, Carlos Caminada, Susan Warren
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