Crude oil futures rose on Tuesday, extending gains from the prior session as investors bet on more production cuts by major producers, though analysts say the recovery could be fragile.
Saudi Arabia’s energy minister Khalid al-Falih on Monday said that the ongoing production curtailments agreed by over 20 producers last year are working, and he also signaled that the cuts could be extended into 2018.
The comments lifted prices but still failed to push prices back to the $50 range, a level last seen two weeks ago.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in June
climbed 25 cents, or 0.5%, to $46.68 a barrel, while July Brent
crude on London’s ICE Futures exchange rose 25 cents, or 0.5%, to $49.49 a barrel.
“Given recent increases in U.S. production, markets are likely to take comfort from an agreement that lasts long enough to allow the market to move towards balance and reduce inventory,” said Ric Spooner, a chief market analyst at CMC Markets.
The agreement between the Organization of the Petroleum Exporting Countries and Russia calls for participants to cut 1.8 million barrels a day of their collective output. The objective is to reduce global inventories to the five-year average.
While producers are slimming down their output, the worry is that end-users aren’t soaking up the crude as fast as expected. In the U.S., gasoline stockpiles remain unusually high for this time of the year.
In China, the world’s largest crude importer, crude imports last month fell 12% from the previous month while imports of oil products declined 8%. Analysts say that import growth will likely pale in comparison to 2016’s 14% on-year jump.
The oil glut and an uncertain demand growth have jolted speculators, with data showing that, for the week ended May 2, money managers trimmed their bullish bets on Brent crude to the lowest levels since late November.
But some analysts sound a more upbeat note, especially on Chinese demand. Bernstein Research said China’s dwindling domestic crude production and increased net product exports will keep China thirsty for foreign oil.
As well, with automobiles and air travel becoming more popular in China, demand for transportation fuels such as gasoline, diesel, and jet fuel will keep growing, the firm noted.
Nymex reformulated gasoline blendstock for June
added 0.6% to $1.53 a gallon, while ICE gasoil for May changed hands rose 2% to $438.75 a metric ton.
Natural gas for June
put on 0.9% to $3.20 per million British thermal units.