Oil rises above $40 before producers’ summit

Crude prices rose Tuesday as traders awaited this weekend’s summit of key oil producers to discuss freezing output levels and easing the supply glut. At around 1100 GMT US benchmark West Texas Intermediate for delivery in May was up 28 cents at $40.64 per barrel, having earlier touched a three-week high at $40.91. Brent crude for June delivery was trading 48 cents higher at $43.31 a barrel. The contract had earlier forged a 4.5-month peak at $43.58.

The oil market had also risen on Monday after soaring eight percent or more last week. “Market participants are viewing (recent) price falls as a good opportunity to buy,” said Commerzbank analyst Carsten Fritsch. “The expectation that oil producers will agree on production caps at their meeting in Doha this Sunday is also bound to be playing its part,” he added. A chronic worldwide supply glut sent oil prices collapsing by three quarters in value between August 2014 and February this year, when they struck near 13-year low points. Analysts expect prices to see-saw before Sunday’s meeting in the Qatari capital Doha that will bring together both OPEC producers led by Saudi Arabia and non-OPEC members such as Russia. A major topic is a proposal to freeze output at January levels to try to ease oversupply. 

Oanda analyst Craig Erlam said traders were meanwhile awaiting weekly US inventories data due Tuesday from industry body the American Petroleum Institute (API). “This week oil traders will primarily be focused on the meeting of oil producers in Doha, but another drawdown today could spur another rally in the meantime,” Erlam said. Barclays Research said the oil market was expected to remain “neutral” until after the April 17 summit. “We expect better directional momentum after the meeting of OPEC and non-OPEC countries,” it said in a commentary. 

However, Barclays noted that the “current expectation is for their actions to have limited impact given the lack of involvement in the freeze of producers that have the potential to grow output.” Key OPEC member Iran has been raising output since nuclear-linked Western sanctions were lifted in January and has signalled it will not join the freeze calls. Some analysts have said only a production cut, rather than a mere freeze, could permanently boost prices amid weak demand in the oversaturated market. “Supply outages and adjustments to output in response to lower oil prices are helping to tighten market balances,” Barclays said.