For some days now, oil prices have appreciated to what seems to be in anticipation of the OPEC+ intended extension of their output cut of 9.7 million barrels per day (bpd).
The new cut in output, if agreed by the oil producers will lead to about 10 per cent cut of global production into July or August during a virtual meeting likely to be held on June 4.
According to market observers, the steady rise in oil prices in recent time was achieved as traders wait to see whether major producers will agree to extend their huge output cuts to shore up prices at the OPEC+ meeting expected later this week.
As at Tuesday, Brent crude futures rose 0.94 per cent, or 36 cents, to $38.68 a barrel as of 0630 GMT.
While the West Texas Intermediate (WTI) crude futures rose from 0.73 per cent, or 26 cents, to $35.70 a barrel.
According to market reports, Brent has doubled over the past six weeks, a development believed to have been aided by the supply cut championed by the Organization of the Petroleum Exporting Countries (OPEC) and allies, including Russia.
Both Brent and WTI prices, however, are still down about 40 per cent for the year so far.
“The whole story is very much based around the supply cuts and the demand recovery,” said Commonwealth Bank commodities analyst Vivek Dhar.
The head of Citi’s commodities research, Edward Morse, said: “Most likely, OPEC+ could extend current cuts until September 1, with a meeting set before then to decide on next steps,”
In April, OPEC and its allies agreed to record supply cut for the months of May and June. Saudi Arabia has been a leading force pushing for extending bigger cuts.
“Russia will be the key obstacle in any extension, and they are unlikely to agree on any extension which goes beyond a couple of months,” said analysts at Dutch bank ING.
It is believed that an extension of the cut on production output cut could see oil prices rise to about $40. However, the anticipated cut would need a follow-through on the commitment to yield the desired result of sustained higher prices.