OPEC countries and other producers including oil giant Russian Federation are backing prolonging last year's production cut to shore up crude prices, strongly indicating that an extension is a done deal even before they meet formally on the issue Thursday.
The cuts are expected to be extended by nine months under the urging of the Saudi Arabia and Russian Federation, the world's top two oil producers.
"OPEC meets on Thursday amid increasing optimism that the production cuts agreed last November will be rolled over and most likely to the end of 1Q18", Colin Smith, analyst at Panmure, said in a note on Tuesday, adding he expected a rollover would "likely deliver a significant tightening of the market".
"I think we nearly all agree on nine months", Algeria's Energy Minister Noureddine Boutarfa told Bloomberg before the committee meeting. Data from the U.S. Energy Information Administration indicate that maintaining the curbs into the first quarter of 2018 would bring stockpiles back in line with the five-year average - OPEC's stated goal.
The plan was released just a day after Trump left Saudi Arabia, Opec's de facto leader, following his first overseas state visit.
Oil prices finished higher Tuesday, buoyed by expectations that OPEC will decide later this week to extend production cuts for at least another six months.
"Production cuts cause higher prices which will incentivize more production for the US shale oil and reduce the impact of the production cuts". Making deeper production cuts would mean ceding significant market share to new players in the industry like USA shale.
US West Texas Intermediate futures were at $50.71, down 42 cents, or 0.8 percent. BMI Research analysts said in a note that a cut extension will mean supplies from the Middle East will remain "constrained", which then, in turn, further opens up strategic market opportunities for USA crude. That added to the backing for another nine months of cuts from the most influential participants in the deal, including Russia, Saudi Arabia and Iraq.
Mexico, which is not in OPEC, has seen its oil industry atrophy in the past 50 years due to underinvestment and hostile regulation of foreign partners.
"With the U.S continuing to win market share by producing more oil at lower price levels, the global supply excess will take a long time to eradicate", said Fawad Razaqzada of Forex.com. Russian Federation pledged to cut production by 300,000 barrels daily.
And by boosting their own production so much while the accords were still being negotiated, OPEC and non-OPEC countries actually made their task harder and pushed back the rebalancing process.
Higher prices should lead to better cash flows for the biggest integrated oil producers, too.
US oil production has already risen by more than 10 percent since mid-2016 to over 9.3 million bpd as its drillers take advantage of higher prices and the supply gap left by OPEC and its allies.
Benchmark Brent crude oil was up 10 cents a barrel at $54.25 by 1210 GMT (8:10 a.m. ET).
Looking to Thursday, although it increasingly seems likely that the cartel and other producers will opt to extend the cuts, the exact countries participating and their exact quota levels remain unclear.