U.S. Crude at 2016 High as Oil Rallies for 2nd Day on Producer Meet

Oil Reuters

AT SEA - FEBRUARY 24: A general view of the BP ETAP (Eastern Trough Area Project) oil platform in the North Sea on February 24, 2014, around 100 miles east of Aberdeen, Scotland. The British cabinet will meet in Scotland for only the third time in ... history to announce plans for the country's oil industry, which it warns will decline if Scots vote for independence. The fate of North Sea oil revenues will be a key issue ahead of the September 18 referendum to decide whether Scotland will end its 300-year-old union with England, and is expected to be the focus of Prime Minister David Cameron's cabinet meeting. (Photo by Andy Buchanan - WPA Pool/Getty Images)

U.S. crude hit 2016 highs on Thursday as oil markets rallied for a second straight day on optimism major producers will strike an output freeze deal in Qatar next month amid soaring gasoline demand in the United States.

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A weaker dollar after a Federal Reserve policy decision on Wednesday that indicated two U.S. rate hikes this year instead of four also drew oil buyers using currencies such as the euro.

OPEC kingpin Saudi Arabia and non-OPEC producers led by Russia will meet on April 17 in the Qatar capital Doha, increasing the likelihood of the first global supply deal in 15 years.

"The remote possibility that a coordinated supply control effort comes from this meeting, assuming it even happens, has put market bears on the defensive," said Pete Donovan, broker with Liquidity Energy in New York.

Oil prices have rallied about 50 percent from 12-year lows since the Organization of the Petroleum Exporting Countries floated the idea of a production freeze, boosting Brent up from around $27 a barrel and U.S. crude from around $26.

On Thursday, the front-month in U.S. crude's West Texas Intermediate (WTI) futures was up $1.31, or 3.5 percent, at $39.77 a barrel by 11:56 a.m. EDT (1556 GMT). It came within a whisker of testing the $40 psychological barrier, hitting a 2016 high of $39.89.

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Brent crude's front-month rose 94 cents, or 2.3 percent, to $41.27, after earlier reaching $41.44, four cents below the year's peak.

"For now, the market is staying well supported, and the dollar is providing additional support," said Olivier Jakob, oil analyst at Petromatrix. "It will be difficult to return to the lows of the year."

WTI also briefly traded at a premium to Brent <CL-LCO1=R> on Thursday, the first time since January, as traders piled into the U.S. crude market on bets of an uptick in domestic oil exports.

U.S. crude has gained further traction on smaller stockpile builds of late, and surging gasoline consumption.

U.S. crude inventories last week climbed to its fifth straight week of record highs but by just 1.3 million barrels, a much smaller build than forecast, government data showed. Gasoline demand rose 6.4 percent over the past four weeks from a year ago. 

(By Barani Krishnan; Additional reporting by Alex Lawler in LONDON; Editing by Marguerita Choy)