Some believe deeper oil cuts are required to make a positive impact.
It's all but official: most nations reportedly support the Organization of the Petroleum Exporting Countries (OPEC) extending its oil cutback initiative to March of 2018, and even though such a strategy has yet to be formally agreed upon and even though many experts say the extension will be as ineffective as the initial cuts, market optimism caused crude on Thursday to rise to a three-week high.
West Texas Intermediate rose 28 cents to $49.35 per barrel, the highest climb since April 26, while Brent increased 30 cents to $52.51 per barrel.
The gains came as Noureddine Boutarfa, energy minister for Algeria, which played a key role in triggering the OPEC reduction deal late last year, said in Moscow that "Most of the countries support the proposition of Russia and Saudi Arabia to extend," and that compliance with promised cuts is "better each month" and will improve with a renewed deal - even though he didn't explain why this would be the case.
Gene McGillian, VP of market research, Tradition Energy
The question is whether that 1.8 million barrel cut is enough to cut that overhang
Jason Schenker, president of Prestige Economics LLC, explained the positive movement by noting that "Not many people will want to be bearish as the meeting approaches; there's sure to be a decision that will be designed to boost prices."
Thomas Finlon, director of Energy Analytics Group LLC, added, "There's room for guarded optimism: OPEC appears to be close to an agreement to roll over the cuts, and U.S. inventories are finally starting to decline."
But the notion of declining stockpiles is very much in contention: for example, both crude oil benchmarks rose on Wednesday after news from the U.S. Energy Information Administration of a drawdown in U.S. crude inventories and a dip in U.S. output; however, Michael Dei-Michei, head of research at JBC Energy, pointed out that gas oils, diesel oil, and other products weren't included by the EIA and that those stocks are rising - which could lead to higher finished product inventories.
Traders also seem to be overlooking the persuasive argument that given huge stockpiles and less-than-stellar global demand, an OPEC extension without deeper cuts will have minimal positive impact.
This message was hammered home by Gene McGillian, VP of market research at Tradition Energy, who told Reuters that with increased production in Libya and Nigeria, as well as the U.S, sticking to current cuts might not be enough: "When you balance that cut with the increase in other areas it's probably a net-net cut of half a million a day,.
"The question is whether that 1.8 million barrel cut is enough to cut that overhang."
Earlier this week, Bill Baruch, chief market strategist at IITrader, warned that a 9 month extension at the same cutback rate will result in a bearish future for crude.