Oil prices rose on Monday as talk of further supply cuts by major OPEC exporters outweighed the prospect of higher U.S. production as a drilling boom spreads across North America.
Brent crude <LCOc1> was up 40 cents at $49.50 a barrel by 1030 BST. U.S. light crude <CLc1> was 30 cents higher at $46.52.
Both futures contracts have dropped by more than 10 percent in the last month despite moves by the Organization of the Petroleum Exporting Countries and other exporters including Russia to restrict supply to try to drain a global glut.
OPEC efforts are being undermined by a surge in drilling in the United States that is spurring a boom in shale oil production that may fill many of the gaps left by OPEC.
Oil investors are wary, brokers say.
“The market is in a very dangerous condition,” said Robin Bieber, technical chart analyst at London brokerage PVM Oil Associates. “The trend is still down, but just correcting.”
OPEC countries and other producers including Russia have pledged to cut output by almost 1.8 million barrels per day (bpd) during the first half of this year to prop up the market.
Saudi Arabia’s energy minister, Khalid Al-Falih, said on Monday that he expected production cuts to be extended to cover all of 2017 and maybe even into 2018.
OPEC meets on May 25 and the group’s ministers have been talking up the chances of more production cuts.
But supply from other regions, particularly North America, shows little sign of declining.
U.S. energy firms added oil rigs for a 16th week in a row last week extending a drilling recovery into a 12th month, energy services firm Baker Hughes Inc said on Friday. <RIG-OL-USA-BHI>
Since a low point in May 2016, U.S. producers have added 387 oil rigs, or about 123 percent, Goldman Sachs said.
U.S. crude output averaged 9.3 million bpd in the week ended April 28, its highest since August 2015, according to federal data [EIA/S] and many analysts see U.S. crude output heading towards 10 million bpd over the next year or so.
Hussein Sayed of brokerage FXTM said oil prices would probably rally, “but the recovery won’t be a straight line”.
“It’s all about inventories and U.S. shale versus OPEC,” Sayed said. “OPEC members have no choice but to talk up prices by signalling an extension to the production cuts agreement.”
Source: Reuters (By Christopher Johnson; Additional reporting by Henning Gloystein in Singapore; Editing by Susan Thomas)