By Jessica Resnick-Ault
NEW YORK (Reuters) - Brent crude prices touched a four-month high on Monday in a rally fueled by strong markets across commodities, ahead of a meeting of oil producers in Doha next Sunday aimed at freezing current output levels.
The market received a small boost ahead of the settlement as a U.S. government forecast released on Monday said U.S. shale oil production is expected to fall for a seventh month in a row in May.
After hitting the highest level since Dec. 7 early in the day, Brent crude futures, the global benchmark, settled up 89 cents, or 2.12 percent at $42.83 a barrel. U.S. crude futures settled up 64 cents, or 1.6 percent, at $40.36 a barrel.
Still, the market is grappling with downside risk ahead of the Doha talks, said John Kilduff at Again Capital Management.
"The market is nervous ahead of this meeting on Sunday," Kilduff said. "There's big event risk, because if it falls apart like the last OPEC meeting did, the prices are going to get punished."
So far, 15 oil-producing countries have officially confirmed that they will attend the meeting in Doha.
The market is having difficulty maintaining a higher price because of a storage overhang, said Gene McGillian, senior analyst at Tradition Energy in Stamford, Connecticut.
"We're still above 9 million barrels of U.S. production, and of course there's a massive overhang in storage that you can't get around," McGillian said.
U.S. commercial crude oil inventories likely rose last week, while refined product stockpiles probably fell, a preliminary Reuters poll showed on Monday. Data from energy information provider Genscape at 10 a.m. suggested the United States will have a smaller-than-expected draw on stockpiles this week, according to market participants.
Prices are likely to remain in a range of $36 to $42, McGillian said.
Oil was also caught in a generally bullish pattern of trading across commodities.
"All commodities are going up. It could be (investors) buying into dips every now and then as people are looking for opportunities to get long," said Abhishek Deshpande, commodity strategist at Natixis in London.
Gold prices also touched their highest level in almost three weeks, while silver and platinum were up more than 2 percent.
A weaker U.S. dollar gave impetus to buyers as commodities priced in the currency became cheaper to purchase.
Oil traders continue to place hopes on the oil producers' meeting to prop up crude prices that have been severely depressed by a global supply glut.
But analysts at Goldman Sachs (NYSE:GS), who expect oil to average $35 a barrel in the second quarter, cautioned that the outcome of the Qatar meeting could prove bearish for the market.
Last week, many oil market speculators agreed with a more bearish outlook as data from the InterContinentalExchange (ICE) showed that net long positions on Brent had been cut to 355,225 contracts in the week to April 5.
However, analysts are forecasting firmer demand for oil over the longer term.
Researchers at Bernstein expect global oil demand to increase at a mean annual rate of 1.4 percent between 2016 and 2020, compared with annual growth of 1.1 percent over the past decade.
Famed oil bull Andy Hall said in a letter viewed by Reuters on Monday that the market had turned in favor of the bulls. Hall rebutted the widely held view that oil prices will struggle to rise above $45 a barrel and will not rebalance before 2017. He suggested that a massive retrenchment and cancellation of projects will uphold a bullish view.