Oil prices hit 2016 high on output-freeze hopes

US oil futures touched new highs for 2016 on Friday and were set to post gains for a fifth straight week on growing optimism that major producers would strike a deal to freeze output, while a more benign interest rate environment also supported prices.

US crude was up 3 cents at $40.23 barrel at 0653 GMT, after rising to as much as $40.55 - higher than the previous peak of $40.36 reached on Thursday. The benchmark had surged 4.5 percent to close at $40.20 in the prior session.

Brent crude’s front-month contract was up 2 cents at $41.56 per barrel and earlier rose to $41.71, a new high for the year. It finished up $1.21 at $41.54 a barrel on Thursday.

Both contracts have traded down at times throughout the day, suggesting resistance at around $40.

“The market is trying to price in the moves by the big producers,” said Avtar Sandu, senior commodities manager at Phillip Futures in Singapore. “Otherwise, $40 oil is actually pretty expensive given the oversupply in the market.”

Oil prices have surged more than 50 per cent from 12-year lows since the Organisation of the Petroleum Exporting Countries (OPEC) floated the idea of a production freeze, boosting Brent from about $27 and US crude from around $26.

US oil is heading for a fifth week of gains, while Brent is on course for a fourth weekly increase, the longest rising streak in about a year for both benchmarks.

But some are urging caution after the strong gains.

“Global fundamentals are little changed and oil has instead been lifted by higher risk-appetite,” BNP Paribas said in a note. “A dialogue among key producing countries to address oil output will at best yield a decision to freeze output, but not the much-needed reduction required to rebalance the market.”

BNP estimates there will be a 1 million barrel increase in global stocks by the end of the first half of 2016.

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

Still, for now, oil prices are drawing support from a softening dollar after a Federal Reserve policy decision on Wednesday indicated two US rate hikes this year instead of the expected four. A weak greenback makes commodities priced in the dollar cheaper for holders of other currencies.

Reuters