Oil prices dropped Friday, but U.S. crude still posted its biggest annual gain since 2009 after OPEC and other major producers agreed to cut output to reduce a global supply overhang that has depressed prices for two years.
U.S. benchmark West Texas intermediate (WTI) crude futures settled down 5 cents at $53.72. Brent front-month March crude oil futures were down 8 cents a barrel at $56.77 at 2:37 p.m. ET (1937 GMT).
WTI futures climbed 45 percent on the year, while Brent futures have risen by more than 52 percent in 2016. The gains in the oil market were the best since the 2009 rally, when Brent and WTI rose 78 percent and 71 percent respectively.
Futures held their losses as oilfield services firm Baker Hughes reported U.S. drillers added oil rigs for a ninth straight week. The weekly count rose by 2 rigs to 525. At this time last year, drillers were operating 536 oil rigs.
Oil prices have more than halved since the summer of 2014, when it was above $100 a barrel. The fall in prices is due to oversupply, in part thanks to the U.S. shale oil revolution, was accentuated later that year when Saudi Arabia rejected any OPEC deal to cut output and instead fought for market share.
But a new agreement to reduce production by the Organization of the Petroleum Exporting Countries (OPEC), struck over three months from September this year, marks a return to the 13-country group’s old objective of defending prices.
Oman told some customers it will reduce term allocations by 5 percent in March, but did not say whether the supply reduction would continue after that.
Although doubts remain as to the production cuts’ effectiveness in implementation, the rise in prices can be seen as “proof of international credibility,” for OPEC and partners, said Igor Yusufov, founder of the Fund Energy investment firm and a former Russian energy minister.
Equally as important to oil prices next year will be the development of demand globally, and major forecasters diverge in their predictions.
“We see a big variation in demand growth assessments for 2017, ranging from +1.22 million bpd (barrels per day) … to +1.57 million b/d,” analysts at JBC said in a note to clients.
“Overall, all forecasters agree that Asia will remain the main engine for demand growth.”
Oil will gradually rise towards $60 per barrel by the end of 2017, a Reuters poll showed on Thursday, with further upside capped by a strong dollar, a likely recovery in U.S. oil output, and possible non-compliance with agreed cuts.
The market on Friday shrugged off an unexpected increase in U.S. crude inventories, which rose 614,000 barrels in the week to Dec. 23 according to U.S. Energy Information Administration data. Analysts had expected a decrease of 2.1 million barrels.
Still, the rise in crude stocks in the EIA data was significantly smaller than in Wednesday’s American Petroleum Institute (API) data that indicated a 4.2 million barrel build in U.S. crude oil stocks in the same period.
Gasoline stocks fell 1.6 million barrels, compared with analysts’ expectations in a Reuters poll for a 1.3 million-barrel rise.
The market is likely to have focused on the surprise draw in product stocks and taken a slightly more bullish view towards the WTI contract, traders said.