By Geoffrey Smith
Investing.com -- Crude oil prices rose on Monday but were well off overnight highs as the market started a week that will be dominated by the meeting between the world’s biggest exporters on Thursday.
By 11:35 AM ET (1635 GMT), the front-month U.S. crude futures contract was up 0.2% at $61.64 a barrel, while Brent crude, the international benchmark, was up 0.6% at $64.77. Both markers had been up by over 1% at the start of trading in the U.S.
The Organization of Petroleum Exporting Countries and its allies, led by Russia, are due to review their pact on output restraint that has been the cardinal factor a rally that has brought prices back to their highest level in over a year.
The producers have reaped the rewards of taking some 7 million barrels a day of output offline to support prices in recent months. The rise in prices will be a keen temptation to some to pump more. However, many analysts feel that the bloc will want to wait a little longer before testing the strength of global demand too much.
Analysts at JPMorgan (NYSE:JPM) led by Natasha Kaneva said in a note late last week that they expect no major increase in supply until early 2022. In part, they added, that’s because there is no near-term risk of losing market share to U.S. producers, whose capital spending remains crimped by the effects of a horrendous 2020 on their stock and bond prices. Baker Hughes' latest rig count showed U.S. active drilling rigs rose to 309 last week - the highest level since May but still nowhere near enough to generate a sustained increase in U.S. output, which is down by some 2.5 million barrels a day from its pre-Covid peak.
The analyst team noted that crude prices are currently around $4 above where their economic modelling suggests they should be, partly down to a further shock to supply from the cold snap in Texas last month. JPMorgan this has probably moved up by a month – to July from August – the date by which global inventories return to their long-term average.
The emergence of a significant spot premium appears to be discouraging short-term players from pushing prices higher still. Hedge funds and other financial players trimmed their net long positions in crude and major refined products for the first time in 16 weeks, according to calculations by Reuters columnist John Kemp based on data from the Commodity Futures Trading Commission.
Over the weekend, the risks of a near-term boost to supply from the lifting of sanctions against Iran appeared to recede, as Teheran refused the offer of direct talks with Washington over work on its nuclear program. Both Iran and the U.S. are currently in breach of the UN-backed 2015 agreement under which Iran suspended the enrichment of uranium in return for the lifting of western sanctions against it.