Saudi energy minister says oil output cuts likely to be extended

The price for July futures of Brent crude oil has increased by 0.81 percent to $49.50 per barrel as of 06:23 (GMT +4).

On the New York Mercantile Exchange, light, sweet crude futures for delivery in June CLM7, +0.76% traded at $46.81 a barrel, up $0.59, or 1.3% in the Globex electronic session.

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 numerous gaps left by OPEC.

The pessimism about the oil market is overdone and the prices are expected to rise over the second half of 2017, says an analysis done by the UK-based consulting company Capital Economics.

"The market is anticipating the EIA to raise its US oil production projections again and if confirmed, it would be very bearish to sentiment", he said. "The trend is still down, but just correcting".

The Organization of the Petroleum Exporting Countries (OPEC), of which Saudi Arabia is the de-facto leader, as well as other producers including Russian Federation, pledged to cut output by nearly 1.8 million barrels per day (bpd) during the first half of the year to prop up the market.

Crude oil rallied following assurances by Saudi Arabia that Russian Federation is ready to join OPEC in extending supply cuts to reduce a persistent glut.

A decision on whether to continue the production cuts is expected at OPEC's next official meeting on May 25.

But supply from other regions, particularly North America, shows little sign of declining. However, based on the previous relationship between the number of active drilling rigs and oil prices, growth in the USA rig count should start to level off soon, ' said the analysis.

USA oil production has risen more than 10 per cent since mid-2016 to 9.3 million bpd, close to levels of top producers Russian Federation and Saudi Arabia.

On the demand side, China's crude oil imports in April eased by nearly 9 percent from March to 8.37 million bpd, although this was largely due to refinery maintenance.

Hussein Sayed of brokerage FXTM said oil prices would probably rally, "but the recovery won't be a straight line". The recent narrowing spread between the Brent and Dubai benchmarks "could result in an uptick in US exports heading to Asia in May", said the consultancy.

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