Oil Extends Gains Before OPEC Meeting
20 May 2017 - 3:25AM
Dow Jones News
By Timothy Puko, Sarah McFarlane and Biman Mukherji
Oil prices are posting some of their largest one-day gains of
the year as investors show optimism about output cuts from the
world's biggest exporters and the possibility they'll be extended
at next week's OPEC meeting.
A surge above $50 a barrel for U.S. crude is its first since
late April. Gains on Friday would be the ninth in 11 sessions, a
sharp turnaround since falling to a five-month low early this
month.
The market has been buoyed in that span by long-awaited declines
in U.S. crude stockpiles. They have been some of the first since
the Organization of the Petroleum Exporting Countries spearheaded
global production cuts to start the year, a move that many had
expected to cause a steady rally.
U.S. crude for June delivery recently gained $1.09, or 2.2%, to
$50.44 a barrel on the New York Mercantile Exchange. Brent, the
global benchmark, gained $1.15, or 2.2%, to $53.66 a barrel on ICE
Futures Europe.
There are few new headlines pushing further gains Friday,
analysts and brokers said. But recent trends have continued.
Many spot markets are stronger, suggesting the OPEC cuts are
having an effect and making supply a little harder to come by, said
Scott Shelton, broker at ICAP PLC. And the recent shift in momentum
gets accelerated by systematic trading programs, which now appear
to be buying again after a long period of selling, he added.
"The markets are really starting to see the effects of the cuts.
People are really starting to struggle for barrels," Mr. Shelton
added, though he cautioned that there are signs of rising
production too. "There are a lot of fits and starts."
The meeting's topic next Thursday will include whether OPEC and
other major producers should extend beyond mid-2017 the six-month
deal on production cuts of 1.8 million barrels a day and for how
long, and whether there should be more severe cuts.
"The expectation is now that we at least get a deal that is a
nine-month extension and the same depth of cuts. And for OPEC to
impress the market, they might need to do more," said Richard
Mallinson, analyst at consultancy Energy Aspects. For instance, the
group may consider a bigger cut, he said.
Bank of America Merrill Lynch pointed out that OPEC is
struggling to bring down global stocks but that the cartel's own
strong production in the fourth quarter, ahead of the cuts, has
made it harder to achieve its goal.
Earlier this week, energy officials from Saudi Arabia and Russia
signaled they back a nine-month extension. That helped kick-start a
rise in prices, with U.S. and Brent crude on track for weekly gains
of nearly 6%.
To some, the price rebound was to be expected after April's
slide. That drop "was a case of sentiment over substance," said BMI
Research. It sees more price gains to come over the next several
months, but they "are more likely to be incremental rather than
exponential."
Gasoline futures recently gained 2.9% to $1.6532 a gallon and
diesel futures rose 2.8% to $1.5891 a gallon.
Write to Timothy Puko at tim.puko@wsj.com, Sarah McFarlane at
sarah.mcfarlane@wsj.com and Biman Mukherji at
biman.mukherji@wsj.com
(END) Dow Jones Newswires
May 19, 2017 13:10 ET (17:10 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.