Oil prices reversed earlier losses and turned slightly positive on Thursday after failing to break below technical support levels and as Opec members told customers they would cut crude supplies as part of the cartel's agreement to reduce output.
Earlier in the day, prices fell to the lowest level in a week as the dollar rallied following an increase in US interest rates. The dollar neared a 14-year high against a basket of other currencies after the US Federal Reserve on Wednesday raised rates for the first time in a year and hinted rates could rise more quickly than investors had anticipated in 2017.
A stronger dollar, in which oil is traded, tends to hit demand for crude as it makes fuel purchases more expensive for users of other currencies. Brent futures for February delivery were up 36 cents, or 0.7 percent, at $54.26 a barrel by 1:39 pm EST (1839 GMT). US crude rose 19 cents, or 0.4 percent, to $51.23 per barrel. Brent fell to $53.15 earlier in the session, its lowest since Dec. 8.
"Brent tested the key $53 (a barrel) support level and now we're seeing some buying because there is too much optimism as the market waits to see how some of Opec's supply cuts come through in the export data," said Troy Vincent, an oil analyst at ClipperData in Louisville, Kentucky. The Organisation of the Petroleum Exporting Countries and other producers led by Russia have promised to cut output by almost 1.8 million barrels per day (bpd) to try to clear global oversupply that has depressed prices for more than two years.
National oil companies in Saudi Arabia, Kuwait and Abu Dhabi have told customers in Asia they would cut crude supplies following Opec's decision to cut output. Saudi Arabia also told US and European customers it would reduce oil deliveries, and traders said other Opec members are expected to do the same.
"These delivery cut announcements provide psychological support that Opec will follow through with their planned output cuts," ClipperData's Vincent said.
ANZ bank said on Thursday that oil markets would move into a substantial deficit in the first quarter of 2017 if Opec and other producers reduced output as promised. "This will likely push oil prices well above $60 per barrel early next year," ANZ analysts said in a note to clients. In Libya, however, the restart of a pipeline leading to two key oil fields could add as much as 350,000 bpd of crude, challenging Opec's efforts to reduce world supplies and boost prices.
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