Feb. 1 (UPI) -- Crude oil prices rallied again on signs of compliance with a managed decline deal, though emerging market factors may drag on the rally.
Crude oil prices rose in the Tuesday session amid further signs that Russia and members of the Organization of Petroleum Exporting Countries were holding the line on an agreement to cap production in an effort to balance the market.
Crude oil prices fell to historic lows last year in response to an increase in U.S. shale oil production and higher output from OPEC and Russia. Any sign of balance would support sentiment that an era of oversupply is fading and stimulate oil prices. Weighing further on the market Wednesday is a meeting of the U.S. Federal Reserve, the first such meeting since U.S. President Donald Trump took office.
It's unlikely the Fed will change rates at its Wednesday meeting. An increase in the rate banks charge each other would increase the value of the U.S. dollar and make dollar-traded commodities like oil decline in value. The inverse would be true for a rate decrease.
The price for Brent crude oil was up 1.1 percent about a half hour before the start of trading in New York to $56.19 per barrel. West Texas Intermediate, the U.S. benchmark price for oil, was up 1percent to $53.34 per barrel.
Adding support to the rally was a report from payroll processor ADP that found private sector employment increased by 264,000. Mark Zandi, a chief economist at Moody's Analytics, said this year got off to a "strong start."
The labor figures follow a report last week, however, that showed a sharp contraction in fourth quarter gross domestic product in the United States. The rise in crude oil prices, meanwhile, is bringing U.S. shale oil producers off the sidelines and bringing with it some supply-side strains.
Olivier Jakob, managing director of Switzerland-based consultant Petromatrix, said in an emailed report that U.S. shale oil is already on a sharp rebound after declines last year. The latest federal estimates show an increase in shale oil production as sections in the Lower 48, Texas in particular, prove more resilient than initially expected.
Total U.S. crude oil production is higher than when OPEC agreed to managed declines in November.
"The OPEC supply cuts are healthy for crude oil markets in the sense that they are preventing the return of the 2016 glut, but with U.S. production already having set the lows in output, rig counts accelerating and improving weather on the way, we fear that when the reduced OPEC exports finally reach the U.S. shores, that supply deficit will have already been mostly replaced by growing U.S. supplies," Jakob said.