Analysts say oil prices are approaching breakout levels, and the final day of trading this week will offer clues about whether crude futures can keep rallying.
Brent crude on Friday topped $66 a barrel for the first time this year, hitting a nearly three-month high and rising more than 6 percent this week.
Meanwhile, U.S. West Texas Intermediate crude approached $56 on Friday, settling 2.2 percent higher at $55.59 a barrel, the best closing prices since Nov. 19.
The main catalyst for the bullish run is a sharp pullback in OPEC's output at the start of a six-month production-cutting deal, which was bolstered by top exporter Saudi Arabia's pledge to pump well below its quota. This week, Saudi Energy Minister Khalid al-Falih said the kingdom plans to produce 9.8 million barrels a day in March, about half a million barrels below levels the Saudis agreed to and down from 11.1 million bpd in November.
That is finally helping oil prices push through resistance built on forecasts for slowing demand and concerns about a sluggish global economy as the U.S.-China trade dispute remains unresolved.
"Oil has previously struggled during previous periods of risk aversion but, like its fellow commodities, is fond of a weaker dollar and is continuing to respond to favourable reports this week," Craig Erlam, senior market analyst at brokerage OANDA, wrote in a morning market briefing.
"Brent and WTI are both now seriously testing a major resistance zone, around $65 and $55, respectively, the break of which could be the catalyst for another rally."
John Kilduff, founding partner at energy hedge fund Again Capital, sees Brent's breakout levels closer to $66.25 and thinks WTI will snap resistance around $56. Earlier in the day, he said if Brent settled above $65 and WTI ended the day above $55 it "would be an important close for the week" and "just continue to solidify the gains that we've been installing."
The uptrend in the market is still "nascent," says Kilduff, but WTI's rise from a low of $51.23 on Monday to a high near $56 on Friday gives the sideways channel a more bullish tone. A bearish mood had prevailed after WTI took a run at $56 a barrel last week and then faltered through the start of this week, he said.
In addition to the deeper-than-expected Saudi production cuts, Kilduff says markets are getting a boost from threats of militant attacks on Nigeria's oil infrastructure ahead of Saturday's presidential elections, ongoing conflict over Libya's biggest oil field, an outage at Saudi Arabia's largest offshore field and new U.S. sanctions against Venezuela's state-owned energy company.
"It's been a pretty measured response to a lot of bullish news actually," he said.