Oil sets new 2016 highs on production freeze

Oil rewrote its 2016 peaks on Friday, barrelling into higher $40 territory and toward multi-week gains on expectations of a production freeze by major exporters and stronger seasonal fuel demand in the United States.

A rally in equity markets, on track to a fifth straight weekly gain, also boosted oil prices, with US energy company shares trading near three and half month highs. The dollar, on the slide since a more accommodative US monetary policy unveiled this week, traded near five-month lows, making many commodities, including oil, more attractive to users of currencies such as the euro.

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"Focus for now is firmly placed on a global macroeconomic environment that is propelling other industrial commodities such as the metals as well as world equities back to around highest levels since late last year," said Jim Ritterbusch of Chicago-based energy markets consultancy Ritterbusch & Associates.

Brent crude was up 65 cents, or 1.5 per cent, at $42.19 a barrel by 10:44 am EDT (1444 GMT), after setting a 2016 high at $42.54. It was on track to a 4 per cent gain on the week, its fourth straight weekly rise.

US crude rose 58 cents to $40.78 after setting the year's high at $41.20. It was on course to gain 6 per cent on the week for a fifth straight week of gains.

Oil has surged about 55 per cent from 12-year lows after the Organization of the Petroleum Exporting Countries (OPEC) floated the idea of a production freeze two months ago, boosting Brent from about $27 and US crude from around $26.

OPEC kingpin Saudi Arabia and non-OPEC producers led by Russia will meet in Qatar on April 17 to further the initiative that could result in the first global oil supply deal in 15 years.

US crude inventories hit a fifth straight week of record highs last week but the build of 1.3 million barrels was less than half of forecasts. Gasoline demand, meanwhile, jumped 6.4 per cent over the past four weeks from a year ago.

"We are leaving the period of low demand and starting to move toward the period when demand increases over the summer," said Olivier Jakob, oil market analyst at Petromatrix at Zug in Switzerland. The market is looking out for the US oil rig count due at 1:00 pm (1800 GMT) from oil services firm Baker Hughes to see if energy firms cut drilling activity again this week.

The oil rig count has fallen the past 12 weeks while total oil and gas rigs are at 1940 lows.