Oil up nearly 2% ahead of OPEC output talks

LONDON (Reuters) – Oil gained on Wednesday ahead of an expected extension to production curbs by OPEC and its allies, with further support from industry data showing a larger than forecast drop in U.S. crude stockpiles.

FILE PHOTO: Oil pump jacks at sunset near Midland, Texas, U.S., August 21, 2019. REUTERS/Jessica Lutz/File Photo

Brent crude LCOc1 futures were up $1.18, or 1.9%, at $62 a barrel by 1151 GMT. U.S. West Texas Intermediate (WTI) crude CLc1 futures were up by 94 cents, or 1.7%, at $57.04.

The Organization of the Petroleum Exporting Countries (OPEC) and allies that include Russia – a group known as OPEC+ – could approve deeper crude output cuts when they meet in Vienna this week.

Iraqi oil minister Thamer Ghadhban told reporters in Vienna on Tuesday that “a deeper cut is being preferred by a number of key members”.

There is still some market scepticism over a deepening of cuts, though it is accepted that the producer group is keen to support prices, with many analysts expecting an extension of the existing supply pact.

“Amid (the) trade war uncertainty, OPEC will be even more determined to maintain a floor on oil prices and will work to deliver precisely that outcome,” said Stephen Innes, chief Asia market strategist at AxiTrader.

OPEC members meet on Thursday, with the OPEC+ group meeting the following day. OPEC+ has been curbing supply since 2017 and is expected to keep the cuts in place to balance out record production in the United States.

U.S. crude oil inventories fell more than expected last week, according to the American Petroleum Institute (API). The API said crude stocks dropped by 3.7 million barrels, more than double the expected 1.7 million barrels. [API/S]

“Tuesday’s inventory number from API won’t have done crude any harm … Expectations for the U.S. Energy Information Administration release today are for a smaller drawdown, which could provide another boost for oil prices,” said Craig Erlam, senior market analyst at OANDA Europe.

Oil prices are being held back by the uncertainty over prospects for a trade deal between the United States and China. The dispute between the world’s two biggest economies has weakened the global economy and limited oil demand growth.

U.S. President Donald Trump on Tuesday said an agreement to end the trade conflict may have to be delayed until after the American presidential election next November.

Prices are likely to fall next year as oil supplies keep rising, outweighing any pick up in growth, Fitch Solutions said. It predicted Brent crude will drop to an average of $62 a barrels in 2020 and $58 in 2021, from a $64 average this year.

Additional reporting by Aaron Sheldrick; Editing by Jane Merriman and David Goodman

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