By Stephanie Yang and Alison Sider
Oil prices ended the year above $60 a barrel on Friday, a milestone not seen in more than two years, in another sign that a longstanding global glut is easing.
Light, sweet crude for February delivery rose 58 cents, or 1%, to $60.42 a barrel on the New York Mercantile Exchange, the highest settle value since June 2015. Brent, the global benchmark, gained 71 cents, or 1.1%, to $66.87 a barrel.
The market has been buoyed by dwindling crude inventories, as investors have been reassured by steadily shrinking supply.
On Thursday, the U.S. Energy Information Administration reported that crude stockpiles fell to the lowest level since October 2015 in the week ended Dec. 22. U.S. stockpiles declined for the sixth consecutive week last week, according to EIA data.
"The inventory trends have been very bullish," said Kyle Cooper, a consultant with ION Energy Group. "I suspect that continues early into the new year."
In November, the Organization of the Petroleum Exporting Countries, along with a group of other major producers outside the cartel including Russia, agreed to extend a deal to cap production through 2018. The original deal, struck in late 2016, has helped ease global inventory levels and spurred a market rally in the second half of this year.
EIA data also showed that U.S. oil production saw its first weekly drop since October, declining by 35,000 a day from a record high the previous week. The number helped ease some concerns about a surge in shale production undermining the oil market's recovery.
Meanwhile, global economic growth has pushed expectations for oil demand higher. The International Energy Agency forecasts that oil demand rose by 1.5 million barrels a day in 2017, and will increase further in 2018 by 1.3 million barrels a day.
"The economies look pretty good, demand is decent. We kind of need the supply," Mr. Cooper said.
Refiners have helped chip away at excess crude supply by turning it into products such as gasoline and diesel. As temperatures have dropped across the U.S., analysts said fuel consumption should also rise.
Diesel futures closed at the highest level in more than two years on Friday, up 1.1% at $2.0755 a gallon. Gasoline futures settled up 0.3% at $1.7992 a gallon.
"We're seeing a response to the weather, no question. This is an old-school rally in the diesel and heating oil market," said Andy Lebow, senior partner at Commodity Research Group. "The expectation is the much colder than normal weather should spur demand."
However, analysts warn that oil's gains may reverse after traders return from the long holiday weekend and trading volumes pick up.
"It didn't tickle our fancy too much," John Macaluso, a trader at Tyche Capital Advisors, said of the recent move. "We still think there's more risk to the downside than anything."
Net bullish bets by speculative investors remain near all-time highs, which could compound a selloff if the oil market turns, analysts said. Bullish bets outnumbered bearish bets by 411,972 contracts in the week ended Tuesday, according to data from the Commodity Futures Trading Commission.
Some expect U.S. shale production to pick up again in 2018, flooding the market with more supply. The EIA anticipates that U.S. output will average 10 million barrels a day next year -- besting the record of 9.6 million barrels a day set in 1970.
Darwei Kung, portfolio manager of the Deutsche Enhanced Commodity Strategy Fund, said $60 is at the high end of the range he's anticipated.
"We've seen quite a bit of hedging activity in last 30 days," Mr. Kung said. "That means there's a lot of incentive for U.S. producers to produce."
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(END) Dow Jones Newswires
December 29, 2017 17:12 ET (22:12 GMT)