Oil prices rose early on Tuesday on expectations that an
Opec-led production cut to prop up the market could be extended, and as strong
demand was seen to slowly erode a global fuel supply overhang.
Prices for front-month Brent crude futures, the international
benchmark for oil, were at US$51.76 per barrel at 0043 GMT, up 14 cents, or 0.3
per cent, from their last close.
US West Texas Intermediate (WTI) crude futures were up 6
cents, or 0.1 per cent, at US$48.28 a barrel.
The Organization of the Petroleum Exporting Countries
(Opec), together with other producers including Russia, has pledged to cut its
output by almost 1.8 million barrels per day (bpd) between January and June in
an effort to prop up prices and rein in a global supply glut that has dogged markets
for almost three years.
Yet so far the cutback has not had the desired effect as
compliance by involved exporters is patchy and as other producers, including
the United States, have stepped up to fill the gap, resulting in crude prices
falling more than 10 per cent since the beginning of the year.
To halt the decline, Opec members increasingly favour
extending the pact beyond June to balance the market, sources within the group
said, although they added that this would require non-Opec members like Russia
to also step up their efforts.
Traders also said that healthy oil demand would help
rebalance markets and support prices.
"Global demand for 2017 is expected to remain healthy
and surpass long-term average growth in demand of 1.2 million barrels per day
by between 0.2 and 0.4 million barrels per day. As such, the combination of
robust demand and weaker global supply leading to rebalanced markets will not
be de-railed by US shale oil," said Jeremy Baker, Senior Commodity
Strategist, at Vontobel Asset Management.
Mr Baker said this would "support the case for a shift
from contango to backwardation in the crude markets during the second-half
2017."
Contango describes a market structure in which prices for
future delivery of a product are higher than current ones, while backwardation
is price curve in which spot prices are more expensive than future deliveries.
The Brent futures forward curve currently shows a slight
contango shape, in which prices for May delivery are 62 US cents below those
for delivery in January 2018.
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