SINGAPORE: Oil prices rose on Monday, supported by reports that an OPEC-led supply cut would not only be extended into next year but might also be deepened in order to tightening the market and prop up prices.
Brent crude futures were up 25 cents, or 0.5%, from their last close at $53.86 per barrel at 0035 GMT (8:35 p.m. ET).
US West Texas Intermediate (WTI) crude futures were back above $50 per barrel, trading at $50.62, up 29 cents or 0.6%.
Both benchmarks have risen more than 10 percent from their May lows early in the month.
Prices have been lifted by expectations that a pledge by the Organization of the Petroleum Exporting Countries (OPEC) and other producers, including Russia, to cut supplies by 1.8 million barrels per day (bpd) would be extended to March 2018, instead of covering just the first half of this year to March 2018.
“Crude oil prices continued to trend higher as the market becomes increasingly confident that OPEC members will commit to a rollover in the production cut agreement,” ANZ bank said in a note on Monday.
The option of deepening the production cut was also being discussed ahead of a meeting of OPEC and its allies in Vienna on May 25 to decide their output policy, sources said.
Despite this, James Woods, investment analyst at Australia’s Rivkin Securities, said “the potential for deepening cuts remains limited… (as) officials are likely to monitor the impact of an extension of the cuts before they resort to such action.”
Woods said, however, that a deeper cut may be required to rein in oversupply.
This is because soaring output from the United States has undermined OPEC’s efforts to tighten the market.
Goldman Sachs said in a note late on Friday that “the US oil rig count continued its surge (last week),” and that the rig count had added 404 oil rigs since May last year, a rise of 128%.
US oil production has already risen by 10%, or almost 900,000 bpd, since mid-2016 to 9.3 million bpd.