Oil prices rose above $40 a barrel on Wednesday, driven by anticipation that the world’s largest exporters could agree this month to freeze production and help erode the largest global build in unwanted crude in years.
Producers in and outside the Organization of the Petroleum Exporting Countries plan to meet in Moscow on March 20 to discuss an output freeze, an Iraqi oil official told state newspaper Al-Sabah.
Brent crude futures LCOc1 rose 62 cents to $40.27 a barrel by 0930 GMT, having touched three-month highs on Tuesday above $41, while U.S. crude futures CLc1 were up 49 cents at $36.99.
“The consensus is for supply and demand to improve in the second half of the year. The problem was always with the first half .. which is heavy,” Petromatrix crude oil strategist Olivier Jakob said.
“Add all this momentum for actually increased talks between OPEC and non-OPEC – if there is a freeze agreement of some sort, then it could (form) the bridge to the tighter supply/demand balance in the second half, so I think that has definitely helped to support prices.”
Oil prices have risen by around 25 percent since Saudi Arabia, Qatar, Venezuela and non-OPEC exporter Russia said in mid-February they would leave supply at January’s levels if there was enough support from other producers.
Nervousness is running high in oil-dependent nations whose budgets have been tattered by the drop in prices, such as Algeria, which warned the recovery in crude was “very unstable” and could reverse.
The hike in oil price has surpassed oil producer, Nigeria’s 2016 budget, which was benchmarked at $38 per barrel.
Credit ratings agency Moody’s warned of the potential for more curtailments to output from defaults arising from the low oil price, which in January was at its weakest in nearly 13 years.
Analysts at Bernstein said poor economics could lead to more oilfield closures.
“Only two months into 2016 we find cumulative shut-in production has already reached 60,000 bpd (barrels per day) and up to 260 million barrels of reserves,” Bernstein said, adding these fields were in Norway, Colombia, Brazil, China and East Timor.
Analysts said falling U.S. output was lending support although concerns over slowing demand and a global production and storage overhang were capping any potential for bigger price gains.
Energy consultancy Wood Mackenzie said it expected “the annual average price for 2016 to be lower than 2015 and then recover in 2017, reflecting large oversupply and high stock levels during the first half of 2016.”