Crude oil climbs for fourth day for fresh 2016 high

Oil prices rose for a fourth straight session on Wednesday, with traders waiting to see if OPEC will make good on its promises to cut output in the new year.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in February CLG7, +0.37%  rose 31 cents, or 0.6%, to $54.21 a barrel. If it closes at that level, it’ll be the highest settlement price for a front-runner contract since June 2015.

February Brent crude LCOG7, +0.59%  on London’s ICE Futures exchange climbed 34 cents, or 0.6%, to $56.42 a barrel.

Most market participants are waiting to see if major oil producers inside and outside the Organization of the Petroleum Exporting Countries will deliver on pledges to curtail production beginning next month. The deal, if carried out as planned, should reduce global supply by about 2%.

Venezuela, an OPEC member whose economy has suffered greatly due to low oil prices, on Tuesday committed to cutting 95,000 barrels a day in line with the pact.

While market participants are at present optimistic that participating nations will abide by the pact, there is still a degree of skepticism about how closely and for how long producers will comply with individual quotas.

“We may see some reduction in output as production is ramped down toward the lower targets, although others could also be take the opportunity to push a few more barrels into the market at the most attractive price,” said Tim Evans, a Citi Futures analyst.

Aside from quota cheating, U.S. shale production could also frustrate OPEC’s plan to shrink the supply overhang.

Based on OPEC’s own forecast, non-cartel oil supply in 2017 is expected to grow by 300,000 barrels a day — as compared with this year — to average 56.5 million barrels a day.

In the short term, market participants will be monitoring U.S. weekly crude stocks data. Analysts surveyed by S&P Global Platts expect a drawdown of 1.5 million barrels a day in U.S. crude inventories for the week ended Dec. 23.

“Given current levels, U.S. crude inventories will almost certainly end 2016 higher than they began the year,” S&P Global Platts said, noting that the last calendar year to record a deficit was 2013.

U.S. oil production has climbed in conjunction with stronger prices, averaging 8.79 million barrels a day in the week ended Dec. 16, up from the 8.43 million barrels a week in late July, based on Energy Information Administration data.

“But expectations are high that the global oil balance will tighten next year given the agreement between OPEC and non-OPEC producers to slash production by nearly 1.8 million barrel a day. That reduction could mean fewer imports, but the net impact on U.S. crude oil stocks will also be determined by U.S. domestic output,” the firm said.

Official data on U.S. crude stocks and production will be released later today.

Nymex reformulated gasoline blendstock for January RBF7, +0.85%  — the benchmark gasoline contract — slipped 0.1% ti $1.66 a gallon, while natural gas for January NGF17, -0.96%  dropped 1.2% to $3.72 per million British thermal unit.

ICE gasoil for January changed hands at $502.50 a metric ton, up $1.50 from Tuesday’s settlement.