Oil traded higher thanks to three key economic events. The first of which was positive U.S. economic data. This positive data brought a lot of optimism that the U.S economy along with other countries are recovering. The second event was a pause in the dollar rally. Such a pause allowed oil to trade higher during the session. The final event was improved optimism that oil producers would abide by the deal that was made a few weeks ago. Even though oil traded higher, gains were capped because of an unexpected increase in U.S. crude inventories. U.S. WTI crude oil closed higher Thursday by 0.88% to $52.95 a barrel. Brent crude oil rose by 1.1% to $55.05 a barrel.

Positive Data

One reason for oil edging higher was the better than expected U.S. data. The bit of positive data stemmed from the third-quarter GDP being revised higher. The Commerce Department said on Thursday that the GDP had been revised up from 3.2% to 3.5% for thethird–quarter. That was mainly driven by strong consumer demand and a boost in exports. Jobless claims rose by 21,000 in the week ending December 17 to a seasonally adjusted 275,000. The rise in the jobless claims is bad but it is still far below the 300,000 number. That means that the labor market is still holding strong even with this small rise in jobless claims. What does this data have to do with how oil trades? That’s because the stronger the economy is the more the amount of oil that can be produced, and the more demand there is for it. Oil heavily relies on strong demand, and along with a strong economy marks for a good recipe for success.

Dollar Rally Fading

The dollar paused its rally on Thursday even with positive U.S. data. The reason for this could be because of a sharp pullback after the dollar had rallied so much. For example, the dollar has gained 5% since the November Presidential election. The reason for the dollar heading higher after the election was optimism that Donald Trump would implement policies that would boost the U.S. economy. The dollar was expected to pullback anyway because it ran up substantially.

The reason  it ran up so much was because about a week ago the Fed raised the interest rates by 25 basis points. The last time the Fed had raised rates was back in December of 2015. The reason for raising interest rates was a boost in the U.S. economy. The dollar fading against a basket of major currencies is highly bullish for oil. That is because oil is highly denominated in terms of dollars. The lower the dollar the more lower the price of oil. A lower price of oil means increased demand across the board. In addition, when the dollar trades lower traders tend to flock to commodities such as oil. Thus, oil trades higher when the dollar drops.

Output Cut

What continues to lead the rally for the price of oil is optimism traders have that OPEC and non-OPEC nations alike would stick to an agreement made on December 10. The reason for oil starting to move higher is because these countries agreed to initiate such cuts on January 1, which is about a week away. Despite strong optimism about agreeing to an output cut, a shocking build in U.S. crude inventory kept the price of oil from breaking out. U.S. government data released on Wednesday showed that there was a surprise build in crude inventory. It was expected that there would be a decline of 2.5 million barrels. Instead, there was a build of 2.3 million barrels. That’s what the problem was, and what caused the price of oil to stay capped during the trading day. Still, oil managed to close higher for the day which is highly bullish for the current price.