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Oil prices rose on Monday, supported by reports that an OPEC-led supply cut would not only be extended into next year but might also be deepened in order to tightening the market and prop up prices.
Pump jacks pump oil at an oil field Buzovyazovskoye owned by Bashneft company north from Ufa, Bashkortostan, Russia July 11, 2015. REUTERS/Sergei Karpukhin/File Photo
LONDON: Oil prices rose on Monday, bolstered by confidence that top exporters will this week agree to extend supply curbs, with suggestions the cuts could even be deepened.
Brent crude gained 48 cents o US$54.09 a barrel by 1043 GMT (6:43 a.m. ET), with U.S. light crude up 47 cents at US$50.80.
Both benchmarks have climbed more than 10 percent from lows earlier this month.
Prices have risen on expectations that the Organization of the Petroleum Exporting Countries (OPEC) and other producers, including Russia, will extend for another six or nine months a deal to cut supplies by 1.8 million barrels per day (bpd).
“The decision (to extend cuts) seems to be almost a done deal,” said Bjarne Schieldrop, chief commodities analyst at SEB Markets. “There seems to be a very high harmony in the group.”
The possibility of deepening the cuts was also being discussed ahead of a meeting of OPEC and other producers in Vienna on May 25, sources said.
But such talk could lead to disappointment if not approved, Commerzbank analysts said.
“If the cuts are merely to be extended, this is likely to be met at best with a neutral reception, if not even with disappointment,” Commerzbank said in a note.
Some analysts argue that deeper cuts are required to balance the market, pointing to a slight rise in OPEC exports this year.
The U.S. Energy Information Administration (EIA) expects OPEC net oil export revenues to rise in 2017, partly because of “slightly higher” OPEC output.
Deeper cuts might, however, serve to stimulate U.S. shale production, said Schieldrop at SEB Markets.
“If you cut production, it’s no free lunch. You get something in the short term, but you get a backflip in the medium term, which is more production in 2018 and 2019,” he said.
Goldman Sachs says that the U.S. rig count for new oil production has jumped by 404 since May last year, representing a rise of 128 percent.
U.S. oil production has already climbed by 10 percent, or almost 900,000 bpd, since mid-2016 to 9.3 million bpd.
Iraqi oil minister Jabar al-Luaibi said in a speech on Monday that OPEC’s No.2 producer had met its share of production cuts, but added that the country remains ready to meet any global demand growth that may arise.
(Additional reporting by Henning Gloystein; Editing by David Goodman)
