Oil prices rise on expectation of output cut extension

Oil rebounds as OPEC talks up cutting supply into 2018

Oil rebounds as OPEC talks up cutting supply into 2018

Oil prices rose on Monday as Saudi Arabia's energy minister said an OPEC-led production cut scheduled to end in June would likely be extended to cover all of the year, or even into 2018, although another increase in USA drilling capped gains.

Brent crude oil futures rose 0.72 dollar or 1.49 percent to close at USD 49.10 a barrel at NYMEX.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in June CLM7, +0.76% traded at $46.81 a barrel, up $0.59, or 1.3% in the Globex electronic session.

Both futures contracts have dropped by more than 10 per cent in the last month despite moves by the Organization of the Petroleum Exporting Countries and other exporters including Russian Federation to restrict supply to try to drain a global glut.

The pessimism about the oil market is overdone and the prices are expected to rise over the second half of 2017, says an analysis done by the UK-based consulting company Capital Economics. "The trend is still down, but just correcting".

Crude has fallen below US$47 a barrel for the first time since the Organization of Petroleum Exporting Countries (OPEC) agreed to cut output in November.

Saudi Arabia's energy minister, Khalid Al-Falih, said on Monday that he expected production cuts to be extended to cover all of 2017 and maybe even into 2018. The selling pressure was ignited by fears that members of the Organization of the Petroleum Exporting Countries won't enlarge the size of their agreed production cuts when they meet on May 25, while non-cartel producers like Russian Federation aren't fully on board with continuing the curtailment.

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But supply from other regions, particularly North America, shows little sign of declining.

Traders also pointed to soaring US oil output, up more than 10 percent since mid-2016 to 9.3 million bpd, levels not far off top producers Russian Federation and Saudi Arabia.

"The fundamentals haven't improved because the world is still awash with oil", said a Singapore-based crude trader, noting the upsurge in USA shale production and exports, especially to Asia, is making it tougher for OPEC to compete.

Energy investors will be watching for China's April crude import data due later Monday.

Hussein Sayed of brokerage FXTM said oil prices would probably rally, "but the recovery won't be a straight line".

Analysts attributed the oil slump to high US commercial inventories, which now stand at 528 million barrels, close to their historical high.

World oil prices are rising on May 8 after the positive statements made by a number of countries regarding the possibility of extending the OPEC oil output cut deal.

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