Oil rose on Wednesday, with Brent above $40 for the first time since March, as optimism mounted that major producers will extend output cuts and a recovery from the coronavirus pandemic will spur fuel demand.
Brent crude futures for August were up 78 cents, or 2%, at $40.35 a barrel, by 0636 GMT. The contract climbed to as high as $40.53, the highest since March 6, after gaining 3.3% on Tuesday.
U.S. West Texas Intermediate (WTI) crude futures gained $1.06, or 2.9%, at $37.87 a barrel. It rose to as much as $38.18, also the highest since March 6. The contract ended the previous session up 3.9%.
Both benchmarks have risen sharply in recent weeks from the lows of April, buoyed by a continuing recovery in China, the epicentre of the virus outbreak, while other economies are slowly opening up after lockdowns to contain its spread.
The Organization of the Petroleum Exporting Countries (OPEC) and other major producers including Russia, a group known as OPEC+, may extend production cuts of 9.7 million barrels per day (bpd), or about 10% of global output, into July or August, sources told Reuters.
The cuts are currently due to run through June, scaling back to a reduction of 7.7 million bpd from July to December, but Saudi Arabia has been pushing to keep the deeper cuts in place for longer.
"Traders are expecting major crude producers to agree on an extension of their huge output cuts to shore up prices," said Avtar Sandu, senior manager, commodities at Phillip Futures.
With the date of the meeting not yet set and some calling for it to be early as this week, much remains up in the air, however.
But the demand picture is looking brighter as economies including China, the world's second-biggest oil consumer, start to recover from the pandemic. China's services sector returned to growth for the first time since January, a private survey showed on Wednesday.
"As virus-related lockdown measures continue to be lifted, we expect that demand will gradually recover," Capital Economics said in a note, estimating that global oil consumption will fall to just under 92 million bpd on average in 2020.
This compared with 100.2 million bpd in 2019, it said, before the pandemic swept through Europe and the United States, evaporating demand for everything from flying to trips to the dentist.
Traders were also monitoring Tropical Storm Cristobal in the Gulf of Mexico for its potential to disrupt oil and gas facilities.
U.S. crude oil inventories fell by 483,000 barrels in the week to May 29, the American Petroleum Institute said on Tuesday. Gasoline and distillate fuel stockpiles rose.
Official government inventory data will be released later on Wednesday. Those figures show U.S. stockpiles still remain high and are forecast to have risen for a second week in a row.
(Reporting by Aaron Sheldrick; editing by Richard Pullin and Christian Schmollinger)
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