Oil rose on Friday, edging closer to new 17-month highs, after Goldman Sachs boosted its price forecast for 2017 and producers showed signs of adhering to a global deal to reduce output. Brent futures rose $1.19, or 2.2 percent, to settle at $55.21 a barrel, while US West Texas Intermediate crude rose $1, or 2 percent, to settle at $51.90 per barrel.
That put both contracts on track to rise for a fourth week in the last five, with Brent up around 23 percent during that time and US crude up about 20 percent. The premium of the Brent front-month over the same US contract closed at $2.26 a barrel, its highest since the end of August. "We're up today because Goldman Sachs bumped up its oil estimates and the Russians said their oil companies would reduce output," said Phil Davis, managing partner of venture capital fund PSW Investments in Woodland Park, New Jersey.
The Organisation of the Petroleum Exporting Countries agreed to reduce output by 1.2 million barrels per day (bpd) from January 1, its first such deal since 2008. Russia and other non-OPEC producers plan to cut about half as much. Those deals, clinched over the past two weeks, have boosted expectations that a two-year supply overhang will clear soon and prices remain near highs last seen in July 2015. Russia said on Friday that all of the country's oil companies, including top producer Rosneft, had agreed to reduce output.
Other oil producers including Kuwait and Saudi Arabia have notified customers that they will cut from January. "While the market will eventually need to see some evidence of an actual reduction in output, talk of production cuts and notices of lower allocations sent to refiners are sufficient to support market sentiment for now," Tim Evans, Citi Futures' energy futures specialist, said in a note. The prospect of lower production led US bank Goldman Sachs to raise its WTI price forecast for the second quarter of 2017 to $57.50 per barrel from $55.
However, there are doubts about the willingness of other OPEC members to reduce output. Iraq, OPEC's second-biggest producer after Saudi Arabia, has signed new deals that will increase sales to Asian customers such as China and India despite its commitment to reduce output by 210,000 bpd.
Libya, which is allowed to ramp up production as part of the OPEC deal, is close to increasing output crimped by unrest after a group of oil guards said they reopened a long-blockaded pipeline linking some of the country's biggest oilfields. In the United States, meanwhile, energy companies this week added oil rigs for a seventh week in a row, extending a seven-month drilling recovery, according to data from Baker Hughes.
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