Brent oil holds gain as Citigroup lifts short-term price outlook

Brent oil traded above $56 a barrel as Citigroup Inc. raised its price outlook citing strong OPEC compliance with agreed output cuts and growing demand in Asia.

Futures rose 0.8 percent in London for a second day of gains. Brent will average $55 this quarter, Citigroup said in a note, an increase of $5 from its previous forecast. The North Sea price benchmark is poised for its biggest shakeup in a decade with a new grade added to the mix from January. Russia plans to reach its pledged output cuts by the end of April, RIA Novosti reported, citing Russia Energy Minister Alexander Novak.

Oil has held above $50 a barrel since the Organization of Petroleum Exporting Countries and 11 other nations started trimming supply to ease a global glut. While the exporters group has implemented about 90 percent of the cuts and Goldman Sachs Group Inc. predicts the market will shift into deficit in the first half, U.S. crude stockpiles have increased to the highest level in more than three decades.

“Oil prices are not likely to stray far from their current $53 to $58 range in the near term,” Ed Morse, global head of commodities research at Citigroup, wrote in a note Tuesday. “Record investor net length and bearish inventory data will likely cap prices until more tangible evidence of a tighter market emerges.”

Brent for April settlement gained 45 cents to $56.63 a barrel on the London-based ICE Futures Europe exchange at 9:14 a.m. in London. The contract gained 37 cents to close at $56.18 on Monday. The global benchmark crude traded at a premium of $2.37 to April West Texas Intermediate.

Russian Output

WTI for March delivery, which expires Tuesday, was 50 cents higher at $53.90 a barrel on the New York Mercantile Exchange. Transactions on Monday will be booked Tuesday for settlement purposes because of the U.S. Presidents Day holiday. The more-active April contract climbed 48 cents to $54.26.

See also: China wins big with stakes in $22 billion Abu Dhabi oil deal

The effects of high OPEC compliance with its historic output deal has yet to be realized and should support prices into the second quarter, Citigroup said. Compliance may even increase if Iraq’s March exports match the planned 600,000 barrel a day month-on-month cut indicated by loading programs, it said.

Oil-market news:

Norway’s Troll crude will be included alongside existing grades that make up the Dated Brent benchmark — Brent, Forties, Oseberg and Ekofisk, according to price assessor S&P Global Platts.
Russia overtook Saudi Arabia as the world’s largest oil producer in December before both nations started reducing output on Jan. 1 as part of a deal to stabilize the market.
Rosneft PJSC agreed to purchase oil from Libya and the Kurdish region of Iraq as Russia’s largest producer continues its expansion in the Middle East.

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