Asian stocks climbed to a fresh-two year high on Tuesday on the back of an overnight rise in Wall Street, while oil extended gains after major producers Saudi Arabia and Russian Federation pledged to push for an extension of supply cuts into 2018.
Energy ministers from the world's two top producers said that supply cuts should be prolonged for nine months, until March 2018. That is longer than the optional six-month extension specified in the deal.
Benchmark futures prices for US crude rose 3.2% on the news to trade at $49.41 a barrel by 0800 Eastern Time, while shares in big shale oil and gas companies such as and Whiting Petroleum were also higher.
Brent for July settlement gained 15 cents to $51.97 a barrel on the London-based ICE Futures Europe exchange.
Riyadh and Moscow come out strongly in favour of extending oil production caps into 2018 ahead of the measure's review on 25 May.
"It has taken some time for stocks to reflect lower supply when volumes produced before output cuts by OPEC and eleven non-OPEC countries took effect are still being absorbed by the market", the report said.
"But now with rising demand and a commitment by Russian Federation and Saudi Arabia to extend cuts, we could see the recent 5 week drop in USA oil inventories continue for the foreseeable future", he wrote in his daily Energy Report newsletter.
Members of the Organization of Petroleum Exporting Countries agreed in November to cut 1.2 million barrels a day of oil production.
Since US is not a party to the agreement to cut supplies, US shale producers are free to hike production as prices rise, which in turn could undermine the unified effort to prop up the market. US stock indexes are pointed toward narrowly mixed openings when the NY day session begins.
U.S. crude stockpiles are forecast to have declined by 2.75 million barrels to 519.8 million barrels in the week ended May 12th, according to a Bloomberg survey of analysts.
The main reason why oil prices remain low is that supply outstrips demand.
In its monthly report last week, OPEC said that global markets are still suffering from oversupply and it appealed to other producers, including the US, to stop pumping so much.
The second source also saw a modest price recovery as likely in the summer months when United States gasoline demand seasonally rises, citing factors such as a likely drawdown in inventories.
OPEC wants to reduce global oil inventories to their five-year average but so far has struggled to do so.
Kuwait, a Gulf producer usually aligned with the Saudi Opec view, said on Tuesday it supported the proposal.