Oil prices are off to their best-ever start to a year as fears of a supply glut cool, part of a 2019 recovery in risky investments from stocks to commodities.
U.S. crude-oil futures have rebounded 25% in the first two months of the year, according to Dow Jones Market Data, the best January-February performance in figures going back to 1984. Oil is also heading for its best two-month stretch generally since 2016—when prices recovered in April and May of that year after dipping below $27 a barrel.
Oil rose 2.6% Wednesday to $56.94 a barrel after Saudi Arabia’s energy minister reiterated the country’s commitment to curbing output, the latest example of the de facto head of the Organization of the Petroleum Exporting Countries defying calls by President Trump to keep prices low. Crude had tumbled Monday after Mr. Trump tweeted prices were too high. Wednesday’s rebound puts prices near the highest level since November.
This year’s rally comes after a punishing decline. Crude prices fell 44% from their multiyear peak in early October to a Christmas Eve trough as investors fretted that a global economic slowdown would weaken demand for a range of commodities.
Energy investors have been among the biggest beneficiaries of the Federal Reserve signaling a cautious approach to further interest-rate increases and the U.S. and China moving toward a trade agreement. The S&P 500 energy sector has risen 14% so far this year, versus 11% for the broader index.
On Wednesday, energy stocks were among the market’s best performers, with the S&P 500 energy sector rising 0.4%. Fears linger that demand for oil will stall. But the International Energy Agency still expects consumption to increase each quarter this year from a year earlier, albeit at a slower-than-usual pace in the first quarter.
Additionally, Saudi Arabia and other OPEC members have curbed output, despite calls from President Trump for the cartel to keep prices low. Anxiety also remains about the impact of U.S. sanctions on Iran and Venezuela, fueling bets that prices can at least stay steady even if the rally stalls.
“Too many international barrels have been taken off the market,” said Bob Yawger, director of the futures division at Mizuho Securities USA. “There’s a lot of uncertainty around production.”
Because of the Venezuela sanctions, some analysts expect the U.S. will extend waivers to buyers of Iranian crude that were exempted from last November’s penalties to avoid significant market disruptions. The waivers allowed several countries to continue buying Iranian crude through April.
Both Iran and Venezuela were exempted from the December OPEC agreement to lower output because of the sanctions on their respective oil industries. Saudi Arabia and others in OPEC are likely to back a continuation of production curbs when the group meets in April, The Wall Street Journal reported Monday. Saudi Arabia accounted for much of the cartel’s drop in January production, lowering output by 400,000 barrels a day, while Russian supply came down by just 78,000 barrels a day, IEA data show.
Energy Information Administration figures on Wednesday showed U.S. crude imports fell to their lowest level since 1996 last week, a sign of steady domestic oil demand.
But many analysts are keeping a close eye on output from Saudi Arabia and Russia because many expect steady U.S. shale production growth to continue. The EIA said Wednesday that U.S. oil production climbed to a record 12.1 million barrels a day during the week ended Feb. 22.
That compares with January U.S. output of roughly 11.9 million barrels a day and 11.4 million barrels a day from Russia and 10.7 million from Saudi Arabia. Worries about steady U.S. supply pushed West Texas Intermediate futures, the U.S. oil benchmark, down more than 3% Monday, though they have recovered much of that slide. Crude-oil futures began trading in 1983.
“I would be surprised if WTI got above $60,” Mr. Yawger said. “Domestic production is too great.” Some analysts also worry lockstep moves by stocks and commodities have set markets up for another rapid reversal if momentum changes and investors retreat from risk. U.S. crude and the S&P 500 have moved in the same direction 60% of the time so far this year.
The rolling correlation between the S&P 500 and S&P GSCI commodity gauge—heavily weighted toward oil and other energy products—increased to 0.94 last week for the first time since March 2016, according to Dow Jones Market Data, which looked at time spans of 50 days. Correlation is measured on a scale of minus-1 to 1. A reading of minus-1 means two assets are moving perfectly in opposite directions, while a correlation of 1 means they are moving in tandem.