Oil Prices Edge Higher Amid Expectations of Supply Cuts

By Alison Sider, Sarah McFarlane and Jenny W. Hsu Features Dow Jones Newswires

Crude futures flipped from losses to gains on Monday following sharp declines last week amid expectations that major producers will cut their supplies for longer in a bid to reduce high global inventories.

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Prices were supported by comments from Saudi Arabia's Energy Minister Khalid Al-Falih, who Monday said he was confident production cuts led by the Organization of the Petroleum Exporting Countries will be extended into the second half of the year.

U.S. crude futures rose 28 cents, or 0.6%, to $46.50 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, rose 23 cents, or 0.5%, to $49.33 a barrel on ICE Futures Europe.

"The Saudis want to be sure that the world knows they are the judge and jury. That's where they're positioning themselves going into the meeting, " said Donald Morton, senior vice president of Herbert J. Sims & Co., who oversees an energy trading desk.

Mr. Morton said Monday's price bump was the result of "a little bit of bargain hunting," after prices tumbled more than 5% last week, dropping to their lowest levels since November.

"I think you'll see the lows established last week will probably remain in place for the near term."

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OPEC and other major producers including Russia agreed to cut production by 1.8 million barrels a day in the first half of the year in an attempt to drain large global stocks. The cartel is due to meet on May 25 to decide whether to curb output for longer.

"It looks much more likely that OPEC are going to continue the deal over the rest of the year, which should be supportive of prices," said Tom Pugh, commodities analyst at consultancy Capital Economics.

The selling pressure last week was ignited by concerns that global oil stocks weren't falling as quickly as was hoped, especially amid relentlessly rising U.S. output. But some analysts said the market has turned overly negative.

"Sentiment on the oil market is meanwhile worse than the fundamental situation," analysts at Commerzbank wrote in a research note. Inventories are falling and an extension of OPEC's production cuts would likely lead to tighter supplies in the second half of the year, they said.

"Even rising U.S. oil production would do nothing to change this," the analysts wrote.

The election of Emmanuel Macron, a pro-free trade centrist, as France's next president also helped to assuage concerns that the European economy may see further headwinds.

China's April crude imports rose 5.6% compared with the same period a year ago, Customs data showed on Monday. Most China market observers say the country will remain thirsty for foreign crude but import growth will moderate this year, given the slowing economy and a raft of new rules that crimp the import ability of local refiners.

"Importing an average of 8.5 million barrels per day between January and April, China has overtaken the U.S. as the world's largest crude oil importer," said Commerzbank in a daily note.

Crude prices were led higher by rising prices for gasoline and diesel, which have come under pressure amid concerns about weak demand. Gasoline futures rose 1.63 cents, or 1.1%, to $1.5209 a gallon. Diesel futures rose 1.8 cents, or 1.3%, to $1.4546 a gallon.

Write to Alison Sider at alison.sider@wsj.com, Sarah McFarlane at sarah.mcfarlane@wsj.com and Jenny W. Hsu at jenny.hsu@wsj.com

Crude futures turned lower Monday, succumbing to pressure from waning faith that major producers will be successful in their bid to reduce high global inventories.

Prices were initially supported by comments from Saudi Arabia's Energy Minister Khalid Al-Falih, who Monday said he was confident production cuts led by the Organization of the Petroleum Exporting Countries will be extended into the second half of the year or even longer. The election of Emmanuel Macron, a pro-free trade centrist, as France's next president also helped to assuage concerns that the European economy may see further headwinds.

But Mr. Al-Falih's comments may have shaken the market's confidence even further, said Andy Lipow president of Lipow Oil Associates in Houston.

"Their talk of a longer extension is instilling fears in the market that the oversupply situation is worse than what we had thought," Mr. Lipow said.

U.S. crude futures fell 33 cents, or 0.71%, to $45.89 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, fell 44 cents, or 0.9% to $48.66 a barrel on ICE Futures Europe.

OPEC and other major producers including Russia agreed to cut production by 1.8 million barrels a day in the first half of the year in an attempt to drain large global stocks. The cartel is due to meet on May 25 to decide whether to curb output for longer, and market participants are increasingly banking on the group to extend the cuts.

"The oil cartel will be committing commercial suicide if it fails to extend output cuts and provide the energy complex with a much-needed pillar of price support," analysts at the brokerage PVM wrote in a research note. "As such, the OPEC meeting scheduled for May 25 is increasingly shaping up as a 'now or never' moment for the organization."

The selling pressure last week was ignited by concerns that global oil stocks weren't falling as quickly as was hoped, especially amid relentlessly rising U.S. output. But some analysts said the market has turned overly negative.

"Sentiment on the oil market is meanwhile worse than the fundamental situation," analysts at Commerzbank wrote in a research note. Inventories are falling and an extension of OPEC's production cuts would likely lead to tighter supplies in the second half of the year, they said.

"Even rising U.S. oil production would do nothing to change this," the analysts wrote.

Crude prices were led higher in earlier trading by rising prices for gasoline and diesel, which have come under pressure amid concerns about weak demand. But fuel prices also gave up much of their earlier gains. Gasoline futures were flat at $1.5051 a gallon. Diesel futures were up 0.12 cent at $1.4378 a gallon.

Write to Alison Sider at alison.sider@wsj.com, Sarah McFarlane at sarah.mcfarlane@wsj.com and Jenny W. Hsu at jenny.hsu@wsj.com

Crude futures edged higher Monday, amid expectations that major producers will cut their supplies for longer in a bid to reduce high global inventories.

Prices were supported by comments from Saudi Arabia's Energy Minister Khalid Al-Falih, who Monday said he was confident production cuts led by the Organization of the Petroleum Exporting Countries will be extended into the second half of the year or even longer. The election of Emmanuel Macron, a pro-free trade centrist, as France's next president also helped to assuage concerns that the European economy may see further headwinds.

U.S. crude futures rose 21 cents, or 0.45%, to $46.43 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, rose 24 cents, or 0.49% to $49.34 a barrel on ICE Futures Europe.

Oil prices have fallen more than 5% in the last week and are still hovering around their lowest levels since November, before OPEC and other major producers struck their production cut agreement.

The selling pressure last week was ignited by concerns that global oil stocks weren't falling as quickly as was hoped, especially amid relentlessly rising U.S. output. But prices rose Friday and Monday, leading some investors to believe the selloff is finished.

"I think the market is going to recover. This is the heavy demand season -- we shouldn't really be going down," said Mark Waggoner, president of Excel Futures.

Mr. Waggoner said he believes oil prices will soon be on their way up. Once oil futures hit about $47.20, he's likely to start buying, he said.

"Personally, I think the bottom is in," he said.

OPEC and other major producers including Russia agreed to cut production by 1.8 million barrels a day in the first half of the year in an attempt to drain large global stocks. The cartel is due to meet on May 25 to decide whether to curb output for longer, and market participants are increasingly banking on the group to extend the cuts.

"The oil cartel will be committing commercial suicide if it fails to extend output cuts and provide the energy complex with a much-needed pillar of price support," analysts at the brokerage PVM wrote in a research note. "As such, the OPEC meeting scheduled for May 25 is increasingly shaping up as a 'now or never' moment for the organization."

Given that, some analysts said that investors have become overly negative.

"Sentiment on the oil market is meanwhile worse than the fundamental situation," analysts at Commerzbank wrote in a research note. Inventories are falling and an extension of OPEC's production cuts would likely lead to tighter supplies in the second half of the year, they said.

"Even rising U.S. oil production would do nothing to change this," the analysts wrote.

Gasoline futures rose 1.32 cents, or 0.88%, to $1.5178 a gallon. Diesel futures rose 1.9 cents, or 1.32%, to $1.4556 a gallon.

Write to Alison Sider at alison.sider@wsj.com, Sarah McFarlane at sarah.mcfarlane@wsj.com and Jenny W. Hsu at jenny.hsu@wsj.com

(END) Dow Jones Newswires

May 08, 2017 15:46 ET (19:46 GMT)