SINGAPORE: Oil prices edged up on Tuesday, driven by anticipation that an OPEC-led pledge to cut production would be extended beyond the first half of the year and into 2018, although overall high supply still weighed on markets.
Brent crude futures, the international benchmark for oil prices, were at US$49.60 per barrel at 0045 GMT on Tuesday, up 26 cents, or 0.5%, from their last close.
US West Texas Intermediate (WTI) crude oil futures were trading at US$46.66 per barrel, up 23 cents, or 0.5% from the day before.
The higher prices were a result of top exporter and de facto OPEC leader Saudi Arabia saying on Monday it would “do whatever it takes” to rebalance a market that has been dogged by oversupply for over two years, resulting in crude prices below US$50 per barrel.
A cornerstone of the Saudi promise to rebalance the market would be to extend, potentially into 2018, a pledge led by the Petroleum Exporting Countries (OPEC) and other producers including Russia to cut output by almost 1.8 million barrels per day (bpd) during the first half of the year.
“Soothing words from Saudi Arabia about extending the production cut deal, possibly into 2018, supported prices,” said Jeffrey Halley, senior market analyst at futures brokerage OANDA in Singapore.
Despite these statements from Saudi Arabia, crude prices remain near levels seen before OPEC announced its plans to cut late last year.
OPEC’s efforts to tighten the market and prop up prices have been undermined by a relentless rise in US production, especially from shale oil drillers.
US crude production has risen by over 10 percent since mid-2016 to 9.3 million bpd, close to the output of top producers Russia and Saudi Arabia.
Bank of America Merrill Lynch said this was also due to a slowdown in oil demand.
“But oil demand growth this year is underwhelming, in part explaining why crude oil prices and refining margins have sold off sharply recently,” the bank said in a note to clients.
However, it added that “demand should recover somewhat soon as some negative factors, such as the demonetization in India or the sharp recessions in Brazil and Russia, are receding”.