Brent crude oil hit a new 2017 high on Monday, continuing a rally fueled by improving demand and expectations that producers will extend output cuts.
International benchmark Brent rose $1.52, or 2.7 percent, to $58.38 by 11:25 a.m. ET, surpassing the highest level of the year.
U.S. West Texas Intermediate crude remained well below its 2017 high, but topped $51 a barrel for the first time in four months. It was last trading up $1.06, or 2.1 percent, at $51.72.
OPEC and other oil exporters declined on Friday to extend their agreement to limit production in a bid to drain a global glut that has weighed on prices for three years. However, some analysts believe it’s only a matter of time before the cartel agrees to an extension.
“The market anticipates that OPEC and non-OPEC [exporters] are going to continue with their production cuts through 2018,” said Andy Lipow, president of Lipow Oil Associates.
OPEC has now achieved its goal of flipping Brent crude’s market structure into so-called backwardation, said Francisco Blanch, head of commodities and derivatives research at Bank of America Merrill Lynch.
In backwardation, prices for future delivery are cheaper than the cost of oil for immediate shipment. Backwardation signals the market is tightening and discourages oil traders from stockpiling barrels.
However, analysts warned that exporters whose budgets are dependent on oil revenues will be tempted to pump above agreed-upon levels as Brent crude nears $60 a barrel.
“Even at these prices levels, they’re still bleeding cash. So they want more money and I think the incentive to stay together starts to decrease,” Blanch told CNBC’s “Squawk Box” in Asia.
The market is increasingly focused on the demand outlook, after the International Energy Agency and OPEC both raised their forecasts for global oil consumption, analysts tell CNBC.
“In spite of increases from U.S. shale production, that kind of increase is enough to sop up” excess oil supply, Lipow said.
Resurgent production from U.S. shale oil producers, who use advanced drilling methods, has played a major role in delaying the market rebalancing. Higher oil prices this year have encouraged American drillers to pump more, but there are signs the U.S. recovery is slowing.