NEW YORK: Oil prices pared gains after earlier hitting 18-month highs on Tuesday, the first trading day of 2017, as the U.S. dollar rallied to its highest since 2002.
Crude prices were buoyed earlier in the day by hopes that a deal between OPEC and other big oil exporters to cut production, which kicked in on Sunday, will drain a global supply glut.
Brent futures were up 46 cents, or 0.8 percent, at $57.28 a barrel by 11:07 a.m. EST (1607 GMT). U.S. West Texas Intermediate (WTI) crude was up 46 cents, or 0.9 percent, at $54.18 per barrel.
Earlier in the session, both oil contracts hit their highest levels since July 2015 with Brent reaching $58.37 and U.S. $55.24, before paring gains on the strong U.S. dollar.
The dollar rallied to a 14-year high against a basket of other currencies after data showed U.S. manufacturing activity grew more than expected in November.
A stronger greenback pressures demand for dollar-denominated crude, making barrels more expensive for users of other currencies.
Oil futures exchanges were closed on Monday for New Year public holidays.
“WTI was off to a strong start to this New Year with some support developing off of reports that Kuwait and Oman are already in progress of enacting agreed upon cuts,” Jim Ritterbusch, president of Chicago-based energy advisory firm Ritterbusch & Associates, said in a note.
“Although this development appeared to come as a surprise to the market, this should have been expected as initial adherence to the agreed upon production reductions is apt to be quite high at least 80 to 85 percent,” Ritterbusch added.
Jan. 1 marked the official start of a deal agreed by the Organization of the Petroleum Exporting Countries and other exporters such as Russia to reduce output by almost 1.8 million barrels per day (bpd).
Investors will be watching OPEC closely to see whether the group’s members keep their promises to reduce production.
“If 2016 was the year of words, 2017 must be the year of actions,” said Tamas Varga, senior oil analyst at London brokerage PVM Oil Associates.
Non-OPEC Middle Eastern oil producer Oman told customers last week that it would cut its crude oil term allocation volumes by 5 percent in March.
Elsewhere, Libya, one of two OPEC countries exempt from the output cuts, has increased its production to 685,000 bpd, from around 600,000 bpd in December, an official at the National Oil Corporation said on Sunday.
Non-OPEC Russia’s oil production in December remained unchanged at 11.21 million bpd, near a 30-year high, but it was preparing to cut output by 300,000 bpd in the first half of 2017 in its contribution to the accord. --Reuters