Oil rises as market expects extended output cut

Oil prices rose Wednesday, supported by confidence that an OPEC- led output cut aimed at tightening supply would be extended to all of 2017 and the first quarter of 2018.

Brent futures rose to $ 51.71 per barrel by 5: 50 pm Beijing time, up $ 0.24 from their last close.

US West Texas Intermediate futures were at $ 51.64 a barrel, up 0.33 percent.

Both benchmarks have gained more than 10 percent from their May lows below $ 50 a barrel, rebounding on a consensus that the Organization of the Petroleum Exporting Countries ( OPEC) and other producers, including Russia, would extend their pledge to cut sup- plies by 1.8 million barrels per day ( bpd) to March 2018, instead of just covering the first half of 2017.

“OPEC is meeting on May 25 with an extension of supply cuts at the top of its agenda. With oil stocks nowhere near OPEC’s... objective of the recent five- year average level, an extension of cuts seems all but a foregone conclusion,” French bank BNP Paribas said.

BMI Research said that the OPEC- led cuts would only result in a balanced market in 2017, and that from 2018 onward markets would return to oversupply, albeit at a lower level than 2013- 16.

A key reason why markets have not tightened more has been US oil production, which has soared by 10 percent since mid- 2016 to 9.3 million bpd.

Benefiting from a market known as contango, in which future oil prices are higher than those for immediate delivery, US drillers have sold future production to finance expanding output.

To stop this, analysts at Goldman Sachs and elsewhere suggest the price curve should be pushed into backwardation, where future oil prices are below current ones.