Crude prices rose in Asia Monday, extending last week’s gains after data showing a drop in US production, as traders look ahead to an upcoming meeting of oil majors they hope will lead to limits on output.
Data showing US stockpiles and output had seen a surprise fall provided some much needed impetus to the market last week, while a fall in the number of rigs drilling also provided strong support.
Dealers are keenly awaiting the next stockpiles report due Wednesday hoping for a further fall, which would indicate a pick-up in demand.
But the key focus is on the April 17 meeting in Doha, where most of the world’s top producers led by Russia and Saudi Arabia will discuss a global glut that helped send prices plunge by three quarters between August 2014 and February this year.
At around 0420 GMT Monday, US benchmark West Texas Intermediate for May delivery was up 13 cents, or 0.33 per cent, at $39.85 and Brent crude for June was 15 cents, or 0.36 per cent higher at $42.09.
Both contracts rose eight per cent or more last week.
“This coming Wednesday is very critical as we will see whether or not these falling (US) inventories are a one-time thing or a trend,” said Margaret Yang, an analyst with CMC Markets in Singapore.
“If inventory data falls, it will be a strong support for prices to rise,” she said.
However, while there is growing expectation the Doha meeting will see signatories agree to a production freeze at January 2016 levels, analysts were sceptical of the long-term impact of such a deal.
Yang said that a production cut, not a freeze, would be more effective in boosting oil prices.
“Currently, productions of these countries are at historical highs. Even if they can come up with a consensus to freeze the production at current levels, it doesn’t help.”
“If they decide to reduce production, that will be more meaningful,” she said.