Oil traded above $44 a barrel in Asia Monday, extending gains on hopes crude producers would agree to freeze output at a meeting next month, easing a stubborn global supply glut.
Saudi Arabian oil minister Khalid al-Falih’s comments last week that producers could discuss action to stabilise markets lifted market sentiment, helping prices rebound since closing below $40 a barrel and tumbling into a bear market earlier this month.
Any agreement to curb production would help rebalance the crude oil market, where output has been running ahead of demand, analysts said.
At around 0620 GMT, US benchmark West Texas Intermediate for delivery in September was up 39 cents, or 0.88 percent, at $44.88 a barrel and Brent crude for October gained 36 cents, or 0.77 percent, to $47.33. Both contracts rose more than six percent last week following the Saudi minister’s remarks.
“Oil is now close to an equilibrium price, and unless we get further developments, I would expect to see it trading around the $44 to $45 level for the balance of the week,” Michael McCarthy, a chief market strategist said. “It wouldn’t surprise me to see a little bit of pressure as some investors lock in some of the gains they’ve made.” Analysts, however, have cautioned against putting too much hope on an output freeze, noting that previous talks earlier this year have resulted in disagreement. “An agreement is still improbable,” research house Capital Economics said in a market commentary.
It said most oil-producing nations are already churning out crude barrels close to their capacity and any accord to limit output “is unlikely to accelerate market rebalancing by much”.
A monthly report from the Organization of the Petroleum Exporting Countries showed Saudi Arabian oil production was at nearly 10.5 million barrels per day in July — a record high, above peak levels seen the same time last year.
CMC Markets’ Singapore-based analyst Margaret Yang said “it remains to be seen how far this optimism (about an output freeze) could lead the crude rebound”.
OPEC’s informal meeting will take place on the sidelines of the International Energy Forum in Algeria from September 26 to 28, ahead of a planned meeting due at the end of November.