Oil futures jumped in Asian trading after energy ministers from Russia and Saudi Arabia said they would back a nine-month extension to a regime of global production cuts led by the Organization of the Petroleum Exporting Countries.
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That would keep current output caps in place through the first quarter of 2018, if agreed upon by all parties at a May 25 OPEC meeting.
In a joint statement Monday, Saudi Energy Minister Khalid al-Falih and Russian Energy Minister Alexander Novak "expressed optimism that a wider circle of countries will see the benefit of the stabilization of oil markets and will join the efforts."
On the New York Mercantile Exchange, light, sweet crude futures for delivery in June were recently up 1.7% at $48.64 a barrel in the Globex electronic session while July Brent on London's ICE Futures exchange gained 1.5% to $51.60. Before the morning announcement, oil prices were essentially flat in Asia.
"A lot of hedge-fund managers sold down their long positions recently, and this news provides a good rebound," said Gordon Kwan, the head of Asia oil-and-gas research at Nomura.
Late last year, OPEC and a handful of nonmember producers such as Russia agreed to reduce collective daily output by 1.8 million barrels in a bid to bring global inventories back to their five-year average. The latest OPEC production data showed that while participants have been compliant with quotas, stockpiles have remained elevated.
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Even if the production cuts are extended at next week's meeting, "the reality is OPEC is really stuck [between] a rock and a hard place because the U.S. shale producers have proven they can easily lower their production costs," said Vivek Dhar, a commodities strategist at Commonwealth Bank of Australia.
American drilling activity has risen for 17 weeks in a row, according to rig-count data from Baker Hughes. And last week, the U.S. government raised its domestic-production estimates for this year and next. Rising output in the U.S., CMC Markets chief analyst Michael McCarthy said, will reinforce investor doubt about OPEC's strength.
"OPEC no longer has the clout it once had," he said. Even if OPEC agrees to extend its production cuts next week, investors will doubt whether the group has the necessary pull to raise prices over time, Mr. McCarthy said.
Still, energy analysts say the global oil demand outlook is positive. For example, Chinese imports are expected to remain robust as domestic production wanes. Through April, Chinese crude production fell 6% from a year earlier, a trend that is likely to continue.
Over the weekend, Chinese President Xi Jinping pledged more than $100 billion in new financing as part of the "One Belt, One Road" infrastructure project. With more than $900 billion expected to be invested in roads, ports, pipelines and other assets, the project is expected to span across Asia, Africa and parts of Europe.
"The project is definitely a boost to market sentiment, but will it change the dial in the immediate term?" said Mr. Dhar. "Not at all."
James Marson in Moscow contributed to this article.
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(END) Dow Jones Newswires
May 15, 2017 02:34 ET (06:34 GMT)