Oil investors renewed their enthusiasm as a proposal by the world’s two biggest crude producers to extend output curbs into 2018 boosted confidence that other countries will follow suit.
Futures climbed for a fifth day in New York, adding to a 2.1% jump Monday and marking the longest stretch of gains in more than a month. The rally was driven by comments from the Saudi and Russian energy ministers showing their support for continuing production cuts until the end of March. Kuwait also backs the plan, Oil Minister Issam Almarzooq said Tuesday. Global oil markets are rebalancing as supply cuts by OPEC and its allies take effect, yet the restrictions need more time to drain excess inventories, according to the International Energy Agency.
Russia and Saudi Arabia, the largest of the 24 producers that agreed to a deal to cut supply for six months starting in January, are reaffirming their commitment, which should prompt other countries to follow, according to Goldman Sachs Group Inc. There’s still concern that a surge in U.S. production, together with an increase in Libyan output and signs of recovery in Nigeria, may undercut the Organization of Petroleum Exporting Countries’ strategy to stabilize the market and prop up prices.
Gene McGillian, manager of market research for Tradition Energy in Stamford, Connecticut, said: “The backing of a nine-month extension by Saudi Arabia and Russia got the market moving higher.
“We want to start to see inventories fall.”
West Texas Intermediate for June delivery climbed 25 cents, or 0.5%, to $49.10 a barrel at 9:41 a.m. on the New York Mercantile Exchange. The contract rose $1.01 to close at $48.85 on Monday, the highest since April 28. Total volume traded was about 14% above the 100-day average.
US Supplies
Brent for July settlement gained 26 cents, or 0.5%, to $52.08 a barrel on the London-based ICE Futures Europe exchange. The contract climbed 1.9% to settle at $51.82 a barrel on Monday. The global benchmark crude traded at a $2.65 premium to July WTI.
The Saudi-Russia announcement on Monday will probably extend a price rebound that began last week, though the rally is “modest” compared with the increase that came after the OPEC cuts were first announced late last year, Goldman Sachs analysts including Damien Courvalin said in a report.
UScrude stockpiles are forecast to have declined by 2.92 million barrels to 519.6 million barrels in the week ended May 12, according to a survey of analysts. Supplies of gasoline probably dropped 1 million to 240 million barrels while inventories of distillate fuel, a category that includes diesel and heating oil, slipped 1.5 million to 147.3 million barrels last week.
The world’s oil stockpiles increased only slightly in the first quarter and are set to decline in the second as demand picks up seasonally and OPEC constrains output, the IEA said Tuesday in its monthly report. Still, even if OPEC and its partners prolong their measures when they meet next week, inventories will probably remain above average through the end of the year, it said.
Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said: “The big runup yesterday was based on the announcement from Saudi Arabia and Russia.
“The IEA report offers a bullish explanation for today.”
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