Oil prices rose more than two per cent on Tuesday, extending gains ahead of expected output cuts by producer cartel, OPEC, and a mandated reduction in Canadian supply.
Brent crude oil LCOc1 rose $1.55 or 2.5 per cent to a high of $63.24 by 0955 GMT. U.S. light crude CLc1 was $1.25 higher at $54.20.
Both benchmarks climbed around four per cent on Monday after U.S. President Donald Trump and Chinese President Xi Jinping agreed at a meeting of the Group of 20 industrialised nations (G20) to pause an escalating trade dispute.
“The market seems positively oriented, following the G20 developments and heading into the OPEC meeting on Thursday,” BNP Paribas commodities strategist Harry Tchilinguirian told Reuters Global Oil Forum.
“A commitment by Russia to cooperate with Saudi Arabia and achieve an agreement at the next OPEC meeting has certainly lifted spirits,” he added.
The Middle East-dominated OPEC will meet on Thursday in Vienna to agree on future output, and will discuss strategy with other producers outside OPEC, including Russia.
OPEC and its allies are working toward a deal to reduce oil output by at least 1.3 million barrels per day (bpd), OPEC sources told Reuters, adding that they were still talking to Russia about the extent of its production cuts.
“We expect OPEC to follow suit and agree to a production cut in Vienna this Thursday,” U.S. bank Goldman Sachs said in a note to clients.
“A cut in OPEC and Russia production of 1.3 bpd will be required to reverse the ongoing large increase in inventories.”
It added that it expected a joint effort by OPEC and Russia to withhold supply to push Brent oil prices above the mid-$60 per barrel level.
Helping OPEC in its efforts to rein in emerging oversupply was an order on Sunday by the Canadian province of Alberta for producers to scale back output by 325,000 bpd until excess crude in storage is reduced.
OPEC’s biggest problem is surging production in the U.S. where output, mostly from its southern shale fields, has grown by around two million bpd in a year to more than 11.5 million bpd.
Barclays bank pointed out in a note to clients that oil production in the state of Texas alone reached “4.69 million bpd in September, compared with Iraqi output of 4.66 million by our estimates”.