Oil prices edged higher on Tuesday, helped by expectations that OPEC-led output cuts would be extended beyond June, though gains were capped by persistently high crude inventories.
The Organisation of the Petroleum Exporting Countries (OPEC) and some non-OPEC producers agreed to curb production from January 1 by 1.8mn barrels per day (bpd) for six months to drain crude from record stockpiles. But inventories remain stubbornly large.
Investors were awaiting US inventories data, with the American Petroleum Institute (API) expected to reveal rising stocks after a surprise drop in the week to March 10.
Benchmark Brent crude gained 21 cents to $51.83 a barrel, having touched a three-month low of $50.25 last week. However, prices remain well below the $58 spike in January after the production cuts deal.
US West Texas Intermediate (WTI) crude rose 21 cents to $48.43.
OPEC sources have indicated that its members increasingly favour extended production cuts but want the backing of non-OPEC oil producers, such as Russia, which have yet to deliver fully on existing reductions.
“We think it is very unlikely that Russia will actively take part in any extension of the production cuts that goes beyond paying lip service to the agreement,” Commerzbank said in a note, adding that it would be premature for investors to “pin their hopes” on an extension.
Commerzbank said that OPEC cuts would need to last into the fourth quarter to achieve the group’s goal of reducing record oil stockpiles in industrialised nations to their five-year average.
The WTI delivery hub in Cushing, Oklahoma, could be a particular focus in Tuesday’s API data.
Stocks at Cushing rose in the week to March 10, helping to widen the premium for Brent over WTI. That gap now stands at about $2.70 for May delivery.
“Another increase would be generally bearish for WTI-related spreads,” said Tamas Varga, analyst at London broker PVM Oil Associates.
If supply restraints stay in place, analysts said that rising global demand could help rebalance the market.
Jeremy Baker, senior commodities strategist at Vontobel Asset Management, said global demand for crude in 2017 is rising faster than the long-term average of 1.2mn bpd.
