Oil tops $55 for first time in 16 months as OPEC deal fuels buying

Brent crude oil prices rose above $55 a barrel on Monday, trading at a fresh 16-month high, on rising prospects of a tightening market after OPEC members agreed on a landmark deal to cut production last week.

Monday’s gains take the rally since the agreement was struck on Wednesday to 19 percent for Brent, the biggest jump in almost eight years, and 16 percent for U.S. crude.

Brent crude oil futures LCOc1, the global benchmark used to trade oil, soared to their highest since July 2015 to $55.33 a barrel. It last traded at $55.01 a barrel, up 55 cents, or 1 percent, at 1320 GMT.

WTI crude oil CLc1 traded up 50 cents, also 1 percent, at $52.18 a barrel.

“OPEC sentiment continues to support oil markets. Speculative short positions are still at elevated levels and as more traders unwind these positions they could trigger more support for oil prices,” said Hans van Cleef, senior energy economist at ABN Amro in Amsterdam.

The OPEC deal has given speculators impetus to increase bets on higher oil prices. Weekly data from the InterContinental Exchange on Monday showed investors had raised net long positions on Brent to the highest level in four weeks. [O/ICE]

After members of the Organization of the Petroleum Exporting Countries last week agreed to curb production by a combined 1.2 million barrels per day (bpd) from January, all eyes have now turned to a meeting this weekend between OPEC and non-OPEC producers to expand the deal.

Non-OPEC producers are expected to agree to add an output cut of 600,000 barrels per day (bpd) at a meeting in Vienna on Dec. 10.

Iran, which was granted an output rise as part of the OPEC deal as it recovers production curbed by sanctions, will also attend the meeting, SHANA news agency said on Monday.

However, one large uncertainty in the global supply balance is output from the United States, whose shale oil drillers proved more resilient than expected to weak oil prices.

U.S. energy firms extended their recovery in oil drilling into a seventh month last week, data from energy services firm Baker Hughes showed on Friday. <RIG/U>

Overall, accounting for the recent rise in oil drilling, but also for cutbacks earlier this year on low prices, Goldman Sachs said “year-on-year production will decline by 620,000 barrels per day (bpd) in 2016 and increase by 55,000 bpd in 2017”.