Oil Rallies as Hopes Grow for Output Cut
Oil rallied to four-month highs on Thursday, underpinned by a surprisingly large drop in U.S. inventory levels the previous day and by growing expectations for the world's largest producers to agree to cut supply.
Brent crude futures were last up 55 cents on the day at $52.41 a barrel by 1408 GMT, having risen to a session peak of $52.65, the highest in four months.
U.S. futures rose 46 cents to $50.29 a barrel, having broken above $50 for the first time since June this year.
A number of OPEC oil ministers plus Russia's energy minister set to attend an energy conference in Istanbul are expected to meet together informally although they are unlikely to make any new decisions, OPEC sources said.
"In a bullish market environment this is enough to push prices higher again," Commerzbank strategist Carsten Fritsch said.
"It's 'the trend is your friend' and (talk) that Russia will attend next week's producer meeting in Istanbul," he said.
Both contracts hit their highest in nearly four months on Wednesday after U.S. data showed crude oil stockpiles fell 3 million barrels last week to 499.74 million barrels, confounding expectations for an increase.
Traders said a decline in prices early in Thursday's session reflected a weaker physical crude market after top exporter Saudi Arabia cut the price of its crudes to Asia for November in a sign that the global fuel glut is persisting.
Hefty refinery maintenance in Europe, and the ensuing drop in demand for crude, has also put the physical North Sea oil market under pressure, forcing sellers to offer barrels of grades such as Forties at their weakest since July.
Overall, however, analysts said the market was well supported at current levels, especially because of the proposed output cut announced last week by the Organization of the Petroleum Exporting Countries (OPEC).
"We expect that Saudi will shoulder the bulk of the production cuts with a reduction of 5 percent or 0.5 million barrels per day (bpd), with other Gulf States cutting by 0.3 million bpd," Bernstein Energy said in a note
"With Iran, Libya and Nigeria getting a 'pass', remaining cuts will be on the shoulders of some of the less reliable members in OPEC," it added.
Algeria's Energy Minister Nouredine Bouterfa told local media on Thursday OPEC could cut production at its late November meeting in Vienna by another one percent more than 700,000 bpd agreed in Algiers last month, if needed.
Barring any unforeseen output disruptions, analysts did not expect prices to shoot up much further as production remains high even with an OPEC cut.
"Resilient production in the U.S. and Russia will postpone crude market rebalancing and keep the market in surplus into 2017," BMI Research said.
"With an insufficient demand response to counteract strong supply, the result is a downward revision of our 2017 Brent forecast to $55 per barrel from $57 per barrel," BMI said.
(By Amanda Cooper, Additional reporting by Henning Gloystein in SINGPORE)