Oil prices have risen for a third straight day as production cuts curbed supply from OPEC and its allies, and US monetary policy appeared to be more favourable.

OPEC oil supply has fallen in January by the largest amount in two years, according to a Reuters survey, as Saudi Arabia and its Gulf allies over-delivered on the group’s supply-cutting pact while Iran, Libya and Venezuela registered involuntary declines.

The Organisation of Petroleum Exporting Countries (OPEC), along with allies including Russia, announced supply cuts effective January 1 to tighten the market after worries over a global glut caused heavy price losses in late 2018.

‘The doom and gloom about demand destruction and the perception that OPEC wouldn’t cut production has been put to rest,’ Phil Flynn, oil analyst at Price Futures Group in Chicago.

‘The market, looking forward, is looking at a much tighter situation.’

WTI crude rose 94 US cents to $US55.17 a barrel, a 1.7 per cent gain overnight.

Brent crude futures for March delivery rose 49 US cents to $US62.14 a barrel.

WTI futures were up more than 20 per cent compared with their December close, while Brent was up just over 15 per cent.

Additionally supporting markets, the Federal Reserve on Wednesday signalled that its three-year-drive to tighten monetary policy may be at an end amid a cloudy outlook for the US economy due to global headwinds and impasses over trade and government budget negotiations.

As it held interest rates steady, the US central bank also discarded its promises of ‘further gradual increases’ in interest rates, and said it would be ‘patient’ before making any further moves.

‘Crude oil prices were stronger after signs emerged that OPEC cuts are impacting trade,’ ANZ bank analysts wrote in a note, calling it the second lowest weekly level since 2010.

US sanctions imposed on state oil firm Petroleos de Venezuela SA this week are also causing some supply disruptions.

Oil inventories have started to build up at Venezuela’s oil ports and terminals as PDVSA is finding it cannot export crude at its usual rate due to US sanctions imposed this week.

As of Wednesday, Venezuela had 25 tankers with nearly 18 million barrels of crude – representing about two weeks of the country’s production – waiting to load or for authorisation to set sail, shipping data showed.

‘With the likelihood of a forthcoming decline in Venezuelan production, producer cuts to rebalance the market will prove more effective,’ Harry Tchilinguirian, strategist at BNP Paribas in London, told the Reuters Global Oil Forum.

Still, investors have been concerned over the outcome of US-China trade talks, which resumed in Washington DC on Wednesday. The outcome could shape expectations for oil demand in the world’s largest economies, analysts said.