Oil prices rose Friday, reversing earlier declines as major producers tried to reassure the market and investors regained some confidence in OPEC's agreement to extend its production cuts through the beginning of next year.
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U.S. crude futures rose 90 cents, or 1.84%, to $49.80 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, rose 69 cents, or 1.34% to $52.15 a barrel on ICE Futures Europe.
The move higher follows a nearly 5% drop Thursday after the Organization of the Petroleum Exporting Countries renewed an agreement with 10 other crude-oil producers to extend output caps through March 2018. While the nine-month extension to the current production cuts was widely anticipated, many had hoped the group would agree to even deeper reductions in output or clarify how it plans to eventually exit the production cut agreement without flooding the market with supply once again.
"I think the initial reaction of the market suggests all doubts about the efficacy of the cuts that drove the market below $45 are still there, " said Gene McGillian, research manager for Tradition Energy. "A lot of the optimism that cut is going to mean something has evaporated."
But prices regained ground throughout Friday, amid light trading ahead of the Memorial Day holiday weekend as investors focused on comments from producing nations indicating that they could take additional steps. Russian Energy Minister Alexander Novak said Thursday that a committee tasked with monitoring the production cut agreement will be empowered to adjust the deal if needed. And Iran's oil minister, Bijan Zanganeh, said in a press briefing that OPEC is "ready to do more."
"They're going to waste no time trying to keep the rhetoric machine fired up," said John Kilduff, founding partner of Again Capital. "I don't think anybody wants to be short going into the weekend -- there's plenty of time between now and Tuesday for them to try and talk this market up again," he said.
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Many market observers said the sharp price decline Thursday was an overreaction, arguing that nine more months of lowered output from some of the world's largest exporters will eliminate the glut that has weighed on the market for nearly three years.
"Our latest supply-demand projections leave us expecting that such a 9 month extension will achieve a normalization in OECD inventories by early 2018, even with gradually declining compliance," analysts at Goldman Sachs wrote after the agreement was announced Thursday.
While the market had a "knee jerk reaction" because it "remains skeptical" on the impact of OPEC's cuts, "we encourage investors to separate the near-term, noise-driven price gyrations and focus on the improving global fundamental backdrop," said Helima Croft, global head of commodity strategy at RBC Capital Markets, LLC, who said she believes oil will eventually move between $50 and $60 a barrel.
Rising U.S. shale output remains a potential challenge to OPEC's ability to work off a supply glut. The number of oil rigs working in the U.S. continued to rise for the 19th consecutive week, according to oil-field services firm Baker Hughes Inc. But the pace of increases has slowed: Just two additional oil rigs were added this week.
Some traders and investors are still waiting on the sidelines, not convinced the selloff is over. One of them is Mark Waggoner, president of Excel Futures.
"If this was a normal volume day, I would say the drop is over and we're going to start rallying. But we're going into a weekend," he said. But with prices still below the 200 day moving average, he's not buying. "There's no real way to know which way it's going to go," he said.
Gasoline futures rose 3.33 cents, or 2.07% to $1.6426 a gallon. Diesel futures rose 1.24 cents, or 0.8%, to $1.5633 a gallon.
Summer Said, Benoit Faucon, Dan Molinski and Biman Mukherji contributed to this article.
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(END) Dow Jones Newswires
May 26, 2017 16:38 ET (20:38 GMT)