Oil prices increase ahead of Opec+ meeting on extended output cuts

Oil prices rose on Tuesday, with traders waiting to see whether major producers agree to extend their huge output cuts to shore up prices at a virtual meeting expected later this week.

Brent crude futures rose 0.94 per cent, or 36 cents, to $38.68 a barrel as of 0630 GMT.

West Texas Intermediate (WTI) crude futures rose 0.73 per cent, or 26 cents, to $35.70 a barrel.

Brent has doubled over the past six weeks, thanks to supply cuts by the Organization of the Petroleum Exporting Countries (OPEC) and allies, including Russia, a grouping dubbed OPEC+.

Both Brent and WTI prices, however, are still down about 40 per cent for the year so far.

"The whole story is very much based around the supply cuts and the demand recovery," said Commonwealth Bank commodities analyst Vivek Dhar.

OPEC+ producers are considering extending their output cut of 9.7 million barrels per day (bpd), about 10 per cent of global production, into July or August, at an online meeting likely to be held on June 4.

"Most likely, OPEC+ could extend current cuts until September 1, with a meeting set before then to decide on next steps," said Citi's head of commodities research Edward Morse.

Under the OPEC+ plan agreed in April, the record supply cut was to be for May and June, scaling back to a cut of 7.7 million bpd from July through December. Saudi Arabia has been leading talks to push for extending the heftier cuts, sources told Reuters last week.

"Russia will be the key obstacle in any extension, and they are unlikely to agree on any extension which goes beyond a couple of months," said analysts at Dutch bank ING.

An extension could push oil prices to $40, but there would have to be follow-through on that commitment to sustain higher prices, said Commonwealth Bank's Dhar.

A drop in crude stockpiles at Cushing, Oklahoma, which fell to 54.3 million barrels in the week to May 29, also buoyed prices, traders said, citing a Genscape report on Monday.

A preliminary Reuters poll, however, showed that overall U.S. crude oil stocks likely increased last week.

Price gains have been capped by trade tension between China and the United States over Beijing's security legislation in Hong Kong, as well as manufacturing data on Monday showing the world's factories were still struggling.