Oil prices rose on Monday in volatile trading, bolstered by statements from major oil-producing countries suggesting that OPEC and non-OPEC supply cuts could be extended into 2018. Benchmark Brent crude settled up 24 cents, or 0.5 percent, at $49.34 a barrel. U.S. light crude gained 21 cents to $46.43 a barrel. Oil prices have been under pressure of late, amid investor concerns the global supply glut is not receding as fast as expected.
The Organization of the Petroleum Exporting Countries and non-OPEC producers, such as Russia, decided late last year on an output cut of 1.8 million barrels per day (bpd) to reduce global oil inventories. News that the curbs might last into 2018 fueled a modest rally in the market.
The lengthy period of rebalancing has prompted a reassessment in the market of whether OPEC’s cuts are working. Saudi Energy Minister Khalid al-Falih on Monday issued more forceful comments about OPEC’s plans, saying the cartel would “do whatever it takes” to rebalance the market. He said a deal on cutting output could extend early into next year.
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Kuwait’s oil minister Essam al-Marzouq echoed those concerns, saying Monday that there is “almost consensus about the importance of extending the agreement for at least six months.”
OPEC and other top producers will meet in Vienna on May 25 to discuss the possibility of cuts. Russia also said it was discussing prolonging cuts with other producers beyond 2017.
However, many analysts only see an overbundance of talk from OPEC members, as opposed to action regarding stockpiles.
“The market is getting tired of hearing from OPEC how good they are, how compliant (with supply curbs) they are,” said Eugen Weinberg, head of commodity research at Commerzbank.
“Those claims do not withstand the reality check with the inventories staying stubbornly high and non-OPEC production rising strongly.”
U.S. energy companies last week extended a recovery in oil drilling into a 12th month, energy services firm Baker Hughes Inc said on Friday. <RIG-OL-USA-BHI>
U.S. oil production <C-OUT-T-EIA> has risen more than 10 percent since mid-2016 to 9.3 million bpd, the highest since August 2015 and close to the levels of top producers Russia and Saudi Arabia.
The market weakness has sparked selling from speculators. For the week to May 2, investors cut bullish bets on Brent to the lowest level since late November, while hedge funds and money mangers also cut gross long positions in U.S. crude futures to the lowest since early November.