Oil prices rise on hopes of producer cooperation

An oilfield drilling rig. (Larry MacDougal via AP)

U.S. crude hit a near-two-week high in a choppy session on Tuesday amid inventory declines at a key storage hub and on expectations that top producers could extend cooperation beyond 2018, while Brent fell under pressure from a stronger dollar.

The Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC oil producers, including Russia, will discuss extending their cooperation for many more years when they meet in June as they seek to avoid major market shocks, United Arab Emirates’ energy minister and OPEC President Suhail al-Mazroui told Reuters,

Data from market intelligence firm Genscape showed that inventories at Cushing, Oklahoma, the delivery point for U.S. crude futures, fell 2.1 million barrels in the week to Feb. 16, according to traders who saw the data.

The combination of a new pipeline running from the hub to Memphis, along with reduced flows from TransCanada’s Keystone pipeline, have sent stockpiles in Cushing to the lowest in about three years.

Flows on Keystone pipeline were decreased after a leak in November.

A strengthening dollar, which hit a six-day high, however, weighed on oil prices. A more robust dollar makes oil and other dollar-denominated commodities more expensive for holders of other currencies.

Brent crude futures ended the session 42 cents, or 0.6%, lower at $65.25 a barrel after trading between $65.81 and $64.78 a barrel.

U.S. West Texas Intermediate (WTI) crude futures settled up 22 cents, or 0.4%, at $61.90 a barrel, as the March contract expired. Prices rallied to a high of $62.74 a barrel early in the session, the highest since Feb. 7.

The most active U.S. crude futures contract for delivery in April settled up 24 cents at $61.79 a barrel.

Front month U.S. crude’s discount to the second month flipped to a discount ahead of the March contract’s expiration, falling to a low of a discount of 10 cents per barrel, the widest since Dec. 11.

Monday’s U.S. holiday for Presidents Day supported WTI’s performance compared with Brent as the U.S. markets caught up with Monday’s gains, said Carsten Fritsch, oil analyst at Commerzbank AG in Frankfurt, Germany.

The divergence in prices kept U.S. crude’s discount to Brent near a six-month low after widening to more than $7 in December.

A narrower premium of Brent to WTI means it is less attractive for consumers in northwest Europe to import U.S. crude, especially with refiners conducting maintenance. Premiums for local North Sea grades are at multi-month lows.