Markets

Oil prices rise on expectation of output cut extension

Oil prices rise on expectation of output cut extension

West Texas Intermediate rose 21 cents to settle at $46.43 per barrel, while Brent climbed 24 cents to end the session at $49.34 per barrel; while this was an improvement over last week's rout that eliminated the gains made when OPEC first announced its initiative last November, oil is still down about 14 percent for the year.

Oil prices rose on Monday on a growing conviction that an OPEC-led production cut initially scheduled to end in June would be extended to cover all of 2017, although a relentless increase in USA drilling activity is seen capping gains. The market expects OPEC and non-OPEC producers to extend the supply cut agreement to support the oil market.

"I believe the worst is now behind us, with multiple leading indicators showing that supply-demand balances are in deficit and the market is moving towards rebalancing", he said. The shale oil drillers continued to add rigs for the 16th consecutive week, which shows that oil production is likely to increase going forward.

"It's pretty apparent that any sustained rise back above $55 will get more and more shale online", said John Kilduff, a partner at energy hedge fund Again Capital LLC in NY.

"There is consensus building but it's not done yet", Khalid al-Falih, Saudi Arabia's Energy Minister said in comments to Reuters.

Crude oil prices were looking for momentum from the French presidential election and from OPEC production cut agreements, but the week was off to a slow start.

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"Oil demand growth this year is underwhelming, in part explaining why crude oil prices and refining margins have sold off sharply recently", it said.

With hedge funds embarking on a fresh cycle of short selling in oil, OPEC ministers seem to have concluded it was no longer practical to wait another two weeks until their formal meeting on May 25. Russian Federation also said it was discussing prolonging cuts with other producers beyond 2017.

Amsterdam- #SaudiArabia and Russian Federation signaled they could extend production cuts into 2018, doubling down on an effort to eliminate a supply surplus just as its impact on prices wanes.

From a bullish perspective, Falih confirmed Saudi Arabia and other oil producers are prepared to do "whatever it takes" to bring global crude inventories back to the five-year average.

Traders stated that oil prices fell due to continued pressure from the rising production in the U.S. along with a slowdown in China's economy.


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