Oil rises above $40 a barrel as rally extends

Oil jumped above $40 a barrel for the first time this year on Monday, extending its rebound from lows hit in January to almost 50 per cent, as more traders bet that the worst of a 20-month long rout is over.

Sentiment in the oil market has improved as major OPEC and non-Opec oil-producing countries prepare to meet to discuss a possible output freeze.

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Saudi Arabia, Russia, Qatar and Venezuela agreed last month to freeze production levels providing other countries join them, in the first coordinated action to tackle a global supply glut that has hammered the industry since mid-2014.

“It’s logical for everyone to freeze their production,” UAE energy minister Suhail Al Mazrouei told reporters in Abu Dhabi on Monday, according to wire services. “It doesn’t make sense for anyone to increase production at the current prices.”

The world’s biggest oil exporters have seen their budgets slashed by a near 75 per cent collapse in oil prices

But there are growing signs the market could tighten.  Pipeline outages in Iraq and Nigeria have also temporarily taken away several hundred thousand barrels a day from the market.

US crude production, which played a large role in creating the glut as it surged between 2010 and 2015, has dropped for six straight weeks as the price rout finally starts reducing output at shale fields.

The price of global benchmark Brent crude rose 3 per cent to $40.11 a barrel, the highest since December. Prices have rebounded by as much as 48 per cent since hitting $27.10 in January. US marker West Texas Intermediate increased 3.5 per cent to a high of $37.46 a barrel.

Part of the rally has come from financial investors closing out bets on falling oil prices and repositioning for a recovery.

Hedge funds and other money managers increased their bets on a Brent price to a new record last week, according to exchange data published on Monday. The net long position on the Intercontinental Exchange — the difference between bets on rising and falling prices — increased by 22,171 lots to 342,460 for the week to March 1, the highest since records began in 2011.

“More and more speculative financial investors are jumping on the bandwagon, thereby reinforcing the upward trend,” said analysts at Commerzbank.

In the US speculators have also unwound bearish bets in US benchmark West Texas Intermediate at the fastest pace since April last year.