Oil prices edged down in a volatile trade on Monday despite Saudi Arabia's oil minister saying that he expected OPEC and its partners to consider extending their deal to cut supply possibly into next year to end a global glut.
Saudi Arabia's Minister of Energy, Industry and Mineral Resources Khalid Al-Falih is confident that the agreement to cut oil output will be extended into the second half of 2017.
In November previous year, OPEC and other producers, including Russian Federation agreed to cut output by about 1.8 million barrels per day between January and June, but so far the move has had little impact on inventory levels.
Hedge funds that had amassed a record bet on oil's recovery at the start of this year have been dumping positions, with data on Friday showing net longs in United States benchmark West Texas Intermediate futures were down to 163m barrels as of May 2 from a high of more than 400m barrels in February.
However, despite extending gains that began Friday, the price of global benchmark Brent crude is still hovering below $50 a barrel.
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).
"Those claims do not withstand the reality check with the inventories staying stubbornly high and non-OPEC production rising strongly", reports CNBC. Higher output in non-Opec countries, particularly the United States, Canada and Brazil, has offset Opec's deal reached past year to cut production and kept pressure on oil prices. "So we may ask for an extension until the end of Q1 of 2018", the source said.An OPEC source said other ideas and scenarios could be discussed, adding that core Gulf OPEC producers had talked about an extension beyond six months.
A survey of industry sentiment from S&P Global Platts predicted a draw on US crude oil inventories of 1.8 million barrels and a gasoline stock decline of 700,000 barrels. Some analysts have concluded even a six-month extension would not be enough to bring stock levels down to their long-run average.
There has been rising speculation about the producers' commitment to the deal, since the surging U.S. production this year has meant that their sacrifices have resulted only in ceded market share.
Lower oil prices are normally good news at the pumps but the rand has been affected by the slump in prices.
"If OPEC announces a production cut, the surprise leads to an upward adjustment in prices ..."