Oil Prices Set to Return to Bull-Market Territory

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Brent crude prices continued to march higher Monday amid a growing market consensus that OPEC will likely extend its production-cut deal.

Brent, the global benchmark, was up 0.44% at $56.67 a barrel in London trading, having closed out Friday at its highest weekly settlement of the past eight months, up $1.24 a barrel on the week.

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Undergirding the increase is a market that expects the Organization of the Petroleum Exporting Countries to "significantly extend output cuts, or even deepen them," according to Thomas Pugh, commodities economist at Capital Economics.

OPEC and 10 producers outside the cartel, including Russia, first agreed late in 2016 to cap their production at around 1.8 million barrels a day lower than peak October 2016 levels, with the aim of alleviating global oversupply and boosting prices. The deal was extended in May through March 2018.

Over the past few weeks, a number of signatories to the deal have indicated a willingness to hold back production potentially through 2018.

Amid falling oil inventories, "it looks as [if] the market has started to get convinced that the rebalancing is actually happening," Tamas Varga, an analyst at PVM Oil Associates Ltd. said in a note Monday.

Mr. Pugh said Brent was also being supported by upward revisions to demand expectations, including by the International Energy Agency earlier in September. But he noted demand for U.S. crude appeared to be lower, partly as a result of the aftereffects of Hurricane Harvey.

On the New York Mercantile Exchange, West Texas Intermediate futures, the U.S. standard, were trading down 0.18% at $50.57 a barrel on Monday morning.

The spread between Brent and WTI, which widened to $6.20 by the close of last session, hasn't been as wide since the U.S. lifted its ban on oil exports nearly two years ago, according to analysts at JBC Energy. In a note on Monday, they said they strongly expected the wide spread to result in record crude exports out of the U.S. Gulf Coast. That should narrow the difference between the two crude benchmarks, the analysts added.

Among refined products, Nymex reformulated gasoline blendstock--the benchmark gasoline contract--was down 1.08%, at $1.63 a gallon. ICE gasoil, a benchmark for diesel fuel, changed hands at $543.25 a metric ton, up 0.32% from the previous settlement.

Write to Christopher Alessi at christopher.alessi@wsj.com

Oil prices are poised to return to bull-market territory Monday after a slow, laborious climb from their slide three months ago.

U.S. crude futures are trading 22% above this year's low of $42.53 on June 21.

West Texas Intermediate, the U.S. benchmark, rose $1.03, or 2.03%, to $51.69 a barrel on the New York Mercantile Exchange. U.S. crude hasn't settled above $51 a barrel since May.

Brent, the global benchmark, was up $1.50, or 2.64%, at $58.36 a barrel, trading at its highest level this year.

The shift has been triggered by renewed confidence that the Organization of the Petroleum Exporting Countries will continue cutting production and that its efforts are helping to drain a supply glut that has weighed on prices for more than three years. A drumbeat of bullish data in September, including the International Energy Agency's upward revision to its demand forecast, have helped lift prices in recent weeks.

"It looks as though the market started to get convinced that the rebalancing is actually happening," Tamas Varga, an analyst at PVM Oil Associates Ltd. said in a note Monday.

Iraqi Kurdistan's independence referendum Monday also played a role in boosting prices Monday, analysts said. Prices rose after Turkish president Tayyip Erdogan made a veiled threat to close the pipeline that allows Kurdish oil to reach the global market.

OPEC and 10 producers outside the cartel, including Russia, first agreed late in 2016 to cap their production at around 1.8 million barrels a day lower than peak October 2016 levels, with the aim of alleviating global oversupply and boosting prices. The deal was extended in May through March 2018.

Over the past few weeks, a number of signatories to the deal have indicated a willingness to hold back production potentially through 2018.

The group is moving to restrain output from Nigeria and Libya, members that were initially left out of the deal because their oil industries were crippled by civil unrest that was expected to tamp down production there. But an unanticipated surge in output from those two countries has been undermining the OPEC deal's effectiveness.

Nigeria's oil minister said Friday that the country would be willing to cap its output, albeit at a higher level than it is currently producing.

"A little bit of OPEC rhetoric leaned toward the friendly side with the potential-slash-possibility of an OPEC extension, and maybe being able to reel the Nigerians and Libyans in a little bit. This is comforting to the bulls," said Donald Morton, senior vice president of Herbert J. Sims & Co., who oversees an energy trading desk.

For much of the year, market participants were skeptical of OPEC's efforts. And it seemed nothing could stop the relentless increase in U.S. output. Traders and investors have been wary of oil prices rising above $50 a barrel, anticipating that higher prices will incentivize U.S. shale producers to start pumping out more crude.

But recently, market participants have been encouraged by signs that shale activity is starting to level off.

At the same time, demand has been strong. The International Energy Agency earlier this month raised its forecast for demand growth this year and now expects an increase of 1.6 million barrels a day.

"The combination of very strong demand, potential greater cohesion among OPEC and growing pains for shale" suggests that the global oil benchmark will maintain its bullish tilt, analysts at Goldman Sachs wrote in a research note.

Fuel prices are also rising as U.S. refineries come back online in the wake of Hurricane Harvey, providing boost to crude prices.

Gasoline futures rose 4.52 cents, or 2.71%, to $1.7136 a gallon. Diesel futures rose 2.92 cents, or 1.61%, to $1.8455 a gallon.

Benoit Faucon contributed to this article

Write to Alison Sider at alison.sider@wsj.com, Christopher Alessi at christopher.alessi@wsj.com and Stephanie Yang at stephanie.yang@wsj.com

(END) Dow Jones Newswires

September 25, 2017 12:18 ET (16:18 GMT)