[LONDON] Global oil prices slipped on Wednesday as the US dollar, in which payments for crude are made, rose but they traded broadly at multi-week highs after Opec signalled optimism over its deal with other producers to curb output.
The US West Texas Intermediate April crude contract, the new front-month future, was down 37 US cents, or 0.7 per cent, at US$53.96 a barrel at 1310 GMT.
Brent crude was down 35 US cents, or 0.6 per cent, at US$56.83, having touched its highest since Feb 2 at US$56.31 in the previous session.
Nevertheless, an agreement by major oil producers under the Opec umbrella, which came into place at the start of this year, lent a floor to oil prices.
Mohammad Barkindo, secretary general of the Organization of the Petroleum Exporting Countries, told a conference on Tuesday that January data showed conformity from member countries in the output cut at above 90 per cent.
Adding to the bullish sentiment, hedge funds raised their combined net long position in the three main derivative contracts linked to Brent and WTI by 51 million barrels last week, holding a net long position equivalent to a record 903 million barrels of oil.
The combined net long position has a notional valuation of more than US$49 billion.
"While net length in Nymex crude has grown more or less uninterrupted since the Opec cut decision towards the end of last year, its share of total open interest in the contract has now reached the highest level since July 2014, back when WTI was trading in triple digits," JBC Energy analysts said in a note.
Both Opec's Barkindo and Goldman Sachs, according to a new research note to clients, expect global inventories to fall, which would boost prices.
Such predictions have prompted several analysts and market players to note the near backwardation of both Brent and WTI oil prices as investors begin to reduce their future hedges.
"The race is now on for the near-term market structure to shift into backwardation. Excluding expiry dates, this has not happened since April 2016 on Brent and November 2014 on WTI," analysts at PVM wrote in a note.
Goldman Sachs, however, noted that a rebound in US drilling activity had exceeded even its own above-consensus expectations.
"While the reduction in supplies out of core Opec in the Gulf and Russia has exceeded our and consensus expectations, the market is starting to doubt that this will be sufficient to translate into large oil inventory draws by 2Q17," it said.
In the meantime, crude oil inventory data from the United States will potentially guide the markets for the rest of the week. The data is set to be released on Thursday, a day later than normal, following a US public holiday on Monday.
"The DoE data tomorrow will be where we get our next impetus," said Michael McCarthy, chief market strategist at CMC Markets in Sydney, referring to the US Department of Energy's official weekly numbers on stockpiles.