U.S. producer prices unchanged; services costs on the rise

U.S. producer prices were unchanged in May as energy costs recorded their biggest decline in more than a year, suggesting a moderation in inflation after a rise at the start of the year.

Inflation at the factory gate, however, remains supported by sustained increases in the cost of services as well as a softening dollar, which is lifting prices of some imported goods.

"Inflation down at the producer level of the economy's factory-to-consumer supply chain remains on the warm side, which is in keeping with the economy moving beyond full employment," said Chris Rupkey, chief economist at MUFG in New York.

The Labor Department said on Tuesday that last month's unchanged reading in its producer price index for final demand followed a 0.5 percent jump in April.

In the 12 months through May the PPI increased 2.4 percent, retreating from April's 2.5 percent surge, which was the biggest yearly increase since February 2012. Last month's inflation readings were broadly in line with economists' expectations.

A key gauge of underlying producer price pressures that excludes food, energy and trade services fell 0.1 percent last month, the first decline in a year. The so-called core PPI rose 0.7 percent in April. The core PPI increased 2.1 percent in the 12 months through May after a similar gain in April.

Federal Reserve officials were scheduled to start a two-day policy meeting later on Tuesday. The U.S. central bank is expected to raise interest rates on Wednesday and offer details on plans to trim its $4.5 trillion balance sheet.

The Fed has a 2 percent inflation target and tracks a measure that is currently at 1.5 percent. It raised its benchmark overnight interest rate by 25 basis points in March.

Economists believe further monetary policy tightening this year will hinge on the inflation outlook.

ENERGY PRICES FALL

Prices of U.S. government debt were trading lower on Tuesday, while the dollar .DXY slipped against a basket of currencies. U.S. stocks rose, with the Dow Jones Industrial Average . DJI hitting a record intraday high as bank stocks advanced in anticipation of a rate hike.

Energy prices fell 3.0 percent last month, the biggest drop since February 2016, after rising 0.8 percent in April. The cost of gasoline declined 11.2 percent in May, which was also the largest decline since February of last year.

As a result, the cost of goods fell 0.5 percent, reversing April's 0.5 percent increase.

But prices for services rose 0.3 percent last month, driven by a 1.1 percent surge in the index for final demand trade services, which measures changes in margins received by wholesalers and retailers.

Services increased 2.1 percent in the 12 months through May, the largest gain since December 2014.

Food costs fell 0.2 percent as the prices of fresh fruits and melons recorded their biggest drop since June 2010. But the cost of beef and veal increased by the most since July 2008. Food prices surged 0.9 percent in April.

The cost of healthcare services fell 0.1 percent last month after being unchanged in April. Those costs feed into the Fed's preferred inflation measure, the core personal consumption expenditures price index.

Tech losses offset gains for US power stocks

A renewed sell-off for technologies stocks led global fairness indices reduce at the start off of the 7 days, though losses ended up restricted to some extent by toughness for the power sector as oil prices obtained floor.

French and Italian authorities bond prices rose subsequent market-welcoming political developments in both of those nations, though sterling remained below force in the wake of very last week’s British isles election.

Shorter-dated US Treasury yields, meanwhile, inched up to their best in a month as the futures market continued to completely cost in a twenty five foundation issue desire rate increase by the Federal Reserve on Wednesday.

On Wall Street, the tech-significant Nasdaq Composite fairness index was down a further more .8 for each cent by early afternoon, using its decline from Thursday’s document closing higher to two.6 for each cent. European tech stocks also arrived below force.

There ended up fears in some quarters that the abrupt fall for the Nasdaq — subsequent its latest outperformance — could herald the start off of a “tech bubble” bursting. Other folks, however, argued that the decline could represent little additional than gain-using as the midyear issue methods.

John Higgins at Cash Economics observed that the tech sector experienced outperformed the broader market considering the fact that the economical crisis, just as it experienced through the late 1990s.

“This trend has also continued considering the fact that President Trump was elected,” he reported.

“Nonetheless, the valuations of shares in the technologies sector do not seem to be to be stretched relative to all those in the broader market, centered on a comparison of their cost/estimated operating earnings ratios.

“This is fairly diverse to the situation right before the dotcom bubble burst, when the valuations of technologies companies normally appeared to have little to do with their capacity to crank out cash flow.”

The S&P 500, meanwhile, was down .3 for each cent at two,423, as a 1.3 for each cent fall for the tech sector offset a .8 for each cent gain for power stocks.

Electrical power was also the ideal-doing sector in Europe, though the pan-regional Stoxx 600 index lose 1 for each cent.

Hong Kong’s Dangle Seng fell 1.two for each cent, with the Shanghai Composite .6 for each cent weaker. Japan’s Topix was flat.

Politics continued to exert a strong affect on European marketplaces.

The generate on the French ten-calendar year authorities bond, which moves inversely to its cost, fell five foundation points to .sixty for each cent, as President Emmanuel Macron’s social gathering appeared set to secure a crystal clear vast majority in the French parliament immediately after conveniently profitable the initial round of French legislative elections.

And Italy’s ten-calendar year generate fell an additional 7bp to two.01 for each cent immediately after the anti-establishment 5 Star Movement experienced bruising defeats in municipal elections. The generate has fallen 17bp considering the fact that the center of very last 7 days when the prospect of early elections in Italy ended up dealt a blow.

“Concerns in excess of the French election and even an early Italian election have ebbed and this has in convert allowed a reduction in danger high quality,” reported Divyang Shah, global strategist at IFR Markets.

“An extra aid has arrive from the European Central Financial institution which has managed to successfully converse a change in forward steering toward neutral without scaring marketplaces into stressing about the next transfer.”

In the British isles, sterling dipped an additional .8 for each cent from the dollar to $1.2643 as contributors continued to assess the probable influence of very last week’s election outcome on Brexit conversations.

But the dollar struggled to establish on very last week’s gains in other places as it retreated .five for each cent from the yen to ¥109.81 and the euro edged up a little bit from the US currency to $1.1196.

The two-calendar year US Treasury generate was up 2bp at 1.36 for each cent. According to CME Group’s FedWatch instrument, marketplaces are pricing in a 96 for each cent probability of the US central financial institution increasing rates.

“We do not be expecting any changes to the desire rate outlook — the “dots” — and forecasts for GDP advancement and the inflation rate should really keep on being unchanged as effectively,” reported UniCredit.

Brent oil was up .8 for each cent at $forty eight.52, leaving it two.four for each cent up from a 1-month intraday lower struck on Friday.

Oil marketplaces ended up rattled very last 7 days as news of a increase in US crude inventories heightened fears that output cuts by Opec and non-Opec producers may well not be plenty of to erode the global crude provide glut.

“Our assessment of [the] details is that it contained various 1-off gatherings and we even now look for US marketplaces to tighten in the coming months,” reported David Martin, analyst at JPMorgan.

“Nevertheless, the even larger picture continues to be 1 of even now elevated stock levels and only restricted progress in drawing down surplus stocks.”

Gold was scarcely altered at $1,266 an ounce despite the a little bit much easier tone of the dollar.

The IEA Says We're Off Track To Meet Climate Goals. Let's Refocus On The Technologies That Work.

The International Energy Agency (IEA) reports that clean energy technologies are not decarbonizing global energy systems fast enough to stay on track to meet Paris Agreement goals (limiting warming to a 2°C-compatible trajectory in 2025), but the world can still decarbonize in time – if governments maintain strong policy signals.

IEA’s annual Tracking Clean Energy Progress report highlights technologies that are on track for meeting the 2° goals, those that are improving but need more effort, and those that are wholly off-track. Their assessment covers both technology development with policy for deployment: In practice, it is more useful to separate these two, as expensive or unproven technologies cannot be deployed, and thus require serious R&D, while many technologies that are already cost-effective are instead hitting institutional obstacles. Still, the gist is clear.

Because time is of the essence in abating climate change, and starting as soon as possible makes subsequent action cheaper and easier, it is important to take technologies that are ready for, or in, prime time, and really accelerate them. So IEA’s technological roadmap can help show where governments should double down on the technologies that can help secure a safe climate future at the least cost.

Many Core Clean Energy Technologies Are On Track

IEA’s report finds only 3 of 26 technologies are on track to reach a sustainable energy transition: onshore wind and solar photovoltaics (PV), electric vehicles (EVs), and energy storage. These technologies are all rapidly scaling up as their costs decline, and are fast becoming mainstream low-carbon solutions. According to IEA:

  • Renewable energy represented more than half of new global capacity additions in 2016, and solar PV and onshore wind are forecast to grow by 2.6 times and 1.7 times, respectively, between 2016-2020.
  • More than 760,000 EVs were sold in 2016, pushing the global total to 2 million EVs on the road.
  • Installed energy storage capacity reached 930 megawatts (MW) in 2016, with year-on-year growth of more than 60% for non-pumped hydro storage.

As renewables and energy storage technologies advance, they become favored regardless of political preference . Today, building new wind farms or solar arrays from scratch are cheaper in some regions than simply paying the operating costs of an existing coal-fired plant—no subsidy or standard required. And America’s red states are installing wind energy at a far greater pace than blue states.

These trends are evident across the world as well, as most of the world’s nations are prioritizing clean energy in their economic futures. India aims to raise $1 trillion for solar investments, China has already committed $360 billion to renewable energy, and the European Investment Bank has pledged €20 billion annually to clean energy. It’s small wonder, then, that China and the European Union just issued a 10-page manifesto reiterating clean energy as “a main pillar of their bilateral partnership.” And where national governments fail to lead, local government and corporations can pick up the slack: After President Trump withdrew the U.S. from the Paris Agreement last Thursday, more than 1,400 U.S. cities, states, and businesses vowed to still meet the Agreement’s decarbonization targets.

Still, important technologies are not getting the price reductions required, or the scale of installations needed.

Stop Subsidizing Coal To Speed Up Decarbonization

The IEA reports 8 of 26 technologies—starting with the retirement coal-fired power—are significantly off-track and require renewed policy focus to meet 2° targets. IEA cites coal’s 40% share of global power generation, and the need to reduce coal-based emissions by around 3% annually until 2025 for a sustainable energy future.

When coal goes up against renewables on cost, it loses. U.S. utilities keep announcing coal retirements due to economics, and U. S. coal demand is at a 30-year low. India won’t need new coal generation for at least a decade, and China canceled 103 coal plants earlier this year. “Coal is over,” a longtime Chinese government official recently remarked in the New York Times.

US oil output poised to hit 10 million barrels a day next year, breaking 1970 record, EIA says

The U.S. Department of Energy on Tuesday signaled it is now more confident that U.S. oil production will rise to 10 million barrels a day next year, the highest average annual level on the books.

The department's Energy Information Administration forecast output would surge to the historic level in 2018 after last month projecting the country would produce just shy of 10 million barrels a day next year. The previous record average was 9.6 million barrels a day in 1970.

"Increased drilling activity in U.S. tight oil basins, especially those located in Texas, is the main contributor to oil production growth, as the total number of active rigs drilling for oil in the United States has more than doubled over the past 12 months," EIA acting Administrator Howard Gruenspecht said in a statement.

The revision is another sign that U.S. drillers are taking full advantage of higher oil prices buoyed by OPEC's deal with crude exporters to limit production in a bid to shrink a global oversupply. Output in the American oil patch has surged about 9 percent to 9.3 million barrels over the last eight months.

Throughout a nearly three-year downturn, American oil companies have driven down the cost of advanced drilling methods, allowing them to pump profitably, even with U.S. West Texas Intermediate crude trading between about $45 and $55 a barrel — roughly half of peak 2014 prices.

The EIA revised down its outlook for prices in 2018 on Tuesday, raising the prospect that U.S. drillers might have to live with thinner profit margins next year.

The agency now sees WTI averaging $53.61 a barrel next year, down 2.7 percent from a forecast of $55.10 in last month's short-term energy outlook. It also revised down its price expectation for international benchmark Brent crude by 2.6 percent.

The EIA left its forecast for this year's production unchanged at 9.3 million barrels a day. It slightly upped its outlook for average WTI and Brent prices in 2017 by about 10 cents.

US Energy Storage Market Experiences Largest Quarter Ever

The first quarter of 2017 was the biggest in history for the U.S. energy storage market.

According to GTM Research and the Energy Storage Association’s (ESA) latest U.S. Energy Storage Monitor, 234 megawatt-hours of energy storage were deployed in the first quarter, which represents more than fiftyfold growth year-over-year.

When measured in megawatts, it was the third-largest quarter in history, ranking behind only the fourth quarters of 2015 and 2016. Front-of-meter deployments grew 591 percent year-over-year, boosted by a few large projects in Arizona, California and Hawaii.

“Much of this growth can be attributed to a shift from short-duration projects to medium- and long-duration projects in the utility-scale market, along with a surge of deployments geared to offset the Aliso Canyon natural gas leak,” said Ravi Manghani, GTM Research’s director of energy storage. “Still, the industry shouldn’t get too comfortable -- there aren’t that many 10+ megawatt-hour projects in the 2017 pipeline, indicating that the first quarter may be the largest quarter this year.”

In all, front-of-meter energy storage represented 91 percent of all deployments for the quarter.

White Papers

Could Renewables Be The Majors’ Next Big Thing?

DOWNLOAD NOW

Pile On The Payoff: When Battery Energy Storage Supports Multiple Uses, ROI Soars

DOWNLOAD NOW

The behind-the-meter market segment, which is made up of residential and commercial energy storage deployments, declined 27 percent year-over-year in megawatt-hour terms. The report attributes the slowdown to a pause in California’s Self-Generation Incentive Program.

California will remain the undisputed king of the U.S. storage market over the next five years. Arizona, Hawaii, Massachusetts, New York and Texas will all battle for second place, with each market forming a significant chunk of deployments through 2022. At that point, GTM Research forecasts the U.S. annual market to reach 2.6 gigawatts and 7.2 gigawatt-hours.

 

Ineos buys Dong Energy's oil and gas business in £1bn deal

Anglo-Swiss chemicals firm Ineos has bought the oil and gas business of Dong Energy for £1bn, a major milestone in the Danish company’s switch from hydrocarbons to renewable energy.

The acquisition is the latest in a buying spree by Ineos, which recently bought a significant North Sea oil pipeline for £200m from BP, and takes it from 28th biggest oil and gas producer in the region to the top 10.

The move highlights two sharply contrasting strategies for Europe’s energy companies: a doubling-down on fossil fuels or shifting exclusively to focus on clean energy.

Ineos, which is funding the purchase through cash flow from its existing businesses including the Grangemouth refinery in Scotland, said the acquisition was a “very logical” step.

“It builds on what we’ve got. It brings us to a much bigger scale – 100,000-plus barrels a day,” said Geir Tuft, a senior executive at Ineos, which also increased its shale gas acreage in the UK by a tenth in March.

He said the company was sanguine about the relatively low oil price of about $50 a barrel, as it would keep costs low.

Tuft said the Dong deal, which was higher than analysts’ valuations, reflected the companies’ differing strategies. “We’re of the opinion that hydrocarbons, and gas in particular, are still a significant part of the energy equation for the world for many years to come.” Around 440 Dong staff will transfer to Ineos.

State-owned Dong, named after its origins as the Danish Oil and Natural Gas company, has now completed its plan of quitting oil and gas, which it first announced last November.

When the sale completes in the third quarter, Dong will be left to focus on its core business of developing and selling windfarms, such as the one it recently built off the Liverpool coast using the world’s biggest turbines.

Henrik Poulsen, the company’s chief executive, said: “The transaction completes the transformation of Dong Energy into a leading pure play renewables company.”

The proceeds of the sale will go towards the six offshore windfarms the company is currently building. The company still has coal assets which it plans to divest.

The move out of fossil fuels is one several major European energy companies are currently pursuing, such as France’s Engie, which plans to earn 90% of its earnings before tax and interest from low carbon businesses by 2019.

Experts at asset management firm Bernstein said the sale had fetched an attractive price for Dong, which floated on the stock market last year for £10bn.

Andrew Grant, of the UK-based thinktank Carbon Tracker, said: “There isn’t a one-size fits all conclusion for fossil fuel companies concerned about future demand. Some, like Dong, will be able to rebalance their portfolios into other assets like renewables.

“However, not all energy companies will feel their skills translate to low-carbon energy sources, but they can still deliver good results with a disciplined approach of focussing only on the lowest-cost oil and gas projects and returning excess cash to shareholders.”

Mercedes-Benz Energy & Vivint Solar Partnering In US

As a means of boosting the market adoption rates of the companies’ tech, Mercedes-Benz Energy and Vivint Solar will be partnering in the US to introduce a joint offering to consumers there, according to a new press release.

In other words, customers in the US will be able to purchase all-inclusive solar energy + energy storage systems/installations — combining Vivint Solar’s solar energy expertise with the new Mercedes-Benz customizable home energy storage systems.

Notably, this is apparently the first time that Vivint Solar has offered an integrated energy storage offering with its solar energy systems. And, as would be expected since the company is only just now entering the market, this is the first time that Mercedes-Benz Energy has partnered with a solar energy system provider in the US directly.

The press release provides more: “Each energy storage system will consist of modular 2.5 kWh (kilowatt-hour) batteries that can be combined to create a system as large as 20 kWh, making it easy to scale and tailor energy storage systems to individual customer profiles. Vivint Solar will customize each system based on the customer’s individual energy consumption needs, providing consumers with an important tool to help them manage their energy costs while utilizing clean energy.”

The CEO of Vivint Solar, David Bywater, commented: “The choice to work with Mercedes-Benz Energy, a world-class innovator in energy storage, was an easy one. We believe their energy storage system is going to delight our customers and are impressed with their ambitious plans for the future. We look forward to bringing this innovative solution to consumers, beginning in our California markets, and to empowering greater renewable energy usage.”

Unsurprisingly, this combined solar energy system + energy storage system will first become available in the top solar market in the US (California) before then possibly rolling out elsewhere.

 

Iowa senator slams energy chief for grid study undermining wind energy

Iowa's Republican senator on Wednesday raised concerns that U.S. Energy Secretary Rick Perry has commissioned a "hastily developed" study of the reliability of the electric grid that appears "geared to undermine" the wind energy industry.

In a letter sent to Perry, Senator Chuck Grassley asked a series of questions about the 60-day study he commissioned. Grassley also said the results were pre-determined and would show that intermittent energy sources like wind make the grid unstable.

Last month, Perry ordered the grid study and said Obama-era policies offering incentives for the deployment of renewable energy had come at the expense of energy sources like coal and nuclear.

"I'm concerned that a hastily developed study, which appears to pre-determine that variable, renewable resources such as wind have undermined grid reliability, will not be viewed as credible, relevant or worthy of valuable taxpayer resources," wrote Grassley, whose state is home to a booming wind energy industry.

He pointed to a previous study conducted a few years ago by the Energy Department's National Renewable Energy Laboratory, which took two years to complete, not two months.

Grassley said Iowa gets 36 percent of its electricity from wind and that its largest utility, MidAmerican Energy Co, is on track to generate 90 percent of its electricity from wind in a few years. Grassley said MidAmerican has the ninth lowest electricity rates in the country.

In the letter, Grassley also asked Perry which grid-reliability organizations and experts were involved in the study, how much it would cost taxpayers and whether the report would be open for public comment.

Perry served as governor of Texas, a leading oil-producing state, from 2000 when he succeeded President George W. Bush until 2015. Under his tenure, Texas became the country's leading wind energy producer.

But Perry has also been a strong advocate of the fossil fuel industry. He told Department of Energy staff that he wanted them to examine whether environmental regulations and tax credit programs that bolster wind and solar energy are forcing coal and nuclear plants to shut down prematurely.

Grassley has been a leading proponent in Congress for the continuation of a wind energy production tax credit. The current credit is due to phase out over the next few years before ending in 2020.

If oil prices recover, these stocks may become attractive

Recent announcements by Russia and Saudi Arabia have helped oil prices to recover and several analysts have highlighted the energy sector as a potential play for investors.

The price for the commodity has been as volatile as ever, but there has seen some strong gains. A barrel of Brent crude is up about 2 percent so far this week.

Oil prices have struggled in recent years due to a global oversupply, but OPEC and non-OPEC producers have reduced their output in hopes of rebalancing the market, agreeing to cut production by 1.8 million barrels per day.

While increased U.S. oil and shale gas production have undermined the output cut, it at least seems to have helped stabilize the price of oil. The price for Brent crude has averaged $54 per barrel, according to UBS strategist Geoff Dennis.

The output cut was only meant to last six months, but major oil producers Russia and Saudi Arabia announced earlier in the week that the supply cut should be extended for another nine months, into March 2018. Members of OPEC will meet next week to discuss extending the supply cut.

Oil prices jumped about 2 percent on Monday following the announcement.

This was further supported by the International Energy Agency's latest monthly report published Tuesday, stating that the oil market has essentially reached a balance, which will accelerate in the near term.

However, the IEA report warned more needs to be done to bring stockpiles down towards the five-year average.

"If, as a scenario and not a forecast, the current (OPEC) output cuts were to be extended for the rest of 2017, oil stocks would start to fall quite sharply… but because they are falling from such a great height, they won't get down to the five-year average until much later in the year and possibly not then," Neil Atkinson, head of the oil industry and markets division at the IEA, told CNBC on Tuesday.

If OPEC succeeds in rebalancing the market and oil prices start to recover, this would present a significant upside risk for stocks in the oil & gas and energy sectors.

Tim Hayes, investment strategist at Ned Davis Research Group, suggested investors should put their money into commodity and energy stocks.

"It does look like commodities, energy, are finally bottoming. This has been the one area that has been divergent in what has essentially been a rolling correction since the beginning of the year," Hayes told CNBC's Squawk Box on Wednesday.

"We saw tech bottom first and then we saw the defensives bottom in March. Financials bottomed in April and materials and energy are the last ones that have come down and now I would say they are trying to form a bottom."

Hayes says that the resource area is looking attractive, in terms of being oversold and better valued.

Another reason to consider energy stocks is they have been one of the worst-performing this year, at least in emerging markets according to UBS strategist Geoff Dennis.

In a research note published Tuesday, he suggested using this recent underperformance to become overweight in the sector, based on rising oil prices, strong earning per share growth and cheap valuations.

"After being the best-performing EM sector in 2016 (up 32.5 percent versus up 8.5 percent for MSCI GEMs), Energy has fallen right to the bottom of the EM sector performance rankings this year, with a gain of only 4.9 percent, while MSCI GEMs is up 16.2 percent," Dennis said.

"We would not lose faith in the EM Energy sector. We stay overweight and advise investors to selectively re-build positions in the sector."

Dennis also named Petrobras and Thailand's PTT E&P as stocks which were particularly attractive for playing the energy sector, as they were highly sensitive to changes in the price of oil.

Oil Prices Slip After U.S. API Reports Build In Crude Stocks

The American Petroleum Institute (API) reported a build of 882,000 barrels in United States crude oil inventories, compared to analyst expectations that markets would see a draw of 2.3 million barrels for the week ending May 12. This week’s build ends a run of five draws over the last six weeks, using API data.

Gasoline inventories fell by 1.88 million barrels, according to the API. Gasoline inventories continue to worry markets, as refiners continue to turn crude oil into gasoline above demand for the fuel.

While there was tough talk from Saudi Arabia and Russia this week, which dangled the idea of extending the oil production cuts into 2018—followed by dutiful member support for the extended extension, including Oman, Venezuela, Kuwait, Iran (with conditions), and even non-compliant Iraq—prices were unable to hold any significant gains.

 

Further dampening spirits, the IEA’s Oil Market Report on Tuesday foretold of a 2017 that would not see oil inventories return to its five-year average—an important milestone that many equate with the rebalancing.

While prices this week have gained over last week, oil prices fell again on Tuesday despite OPEC’s efforts. WTI was trading down 0.18% at 2:14pm EST at $48.76 (+$2.89 over last week) and Brent Crude was trading down 0.08% at $51.78 (+$3.09 over last week).

Gasoline prices were up at 2:17pm EST 0.58% at $1.6047—up almost 12 cents from last week.

Distillate inventories rose this week by 1.8 million barrels, and inventories at the Cushing, Oklahoma, site fell by 500,000 barrels. 

By 15:59 pm CST, both WTI and Brent Crude had fallen on the disappointing news, and were trading at $48.29 and $51.30 respectively.

Oil flat, watching for U.S. inventory data, OPEC news

Oil prices were little changed on Tuesday as the market awaited direction from weekly U.S. inventory data and as Kuwait joined top producers Saudi Arabia and Russia in support of prolonging supply cuts through March 2018 to reduce a global crude glut.

"We expect a rangebound trade today with prices largely confining to yesterday’s parameters as the market awaits another round of weekly stats," Jim Ritterbusch, president of Chicago-based energy advisory firm Ritterbusch & Associates, said in a note.

U.S. crude oil inventories were expected to fall by around 2.3 million barrels during the week ended May 12, according to a Reuters poll. That would be crude's sixth straight weekly decline after hitting a record high at the end of March.

The American Petroleum Institute was scheduled to release data for last week at 4:30 p.m. EDT on Tuesday, with the U.S. Energy Information Administration report due at 10:30 a.m. EDT on Wednesday.

Brent futures were up 4 cents, or 0.1 percent, at $51.86 a barrel by 11:32 a.m. EDT. U.S. crude was up 4 cents, or 0.1 percent, at $48.89 per barrel.

Both benchmarks have risen more than $5 since hitting five-month lows 11 days ago. The small move higher Tuesday put both Brent and U.S. futures on track to rise for a fifth day in a row.

Kuwait's oil minister, Essam al-Marzouq, backed the previous day's agreement by Saudi Arabia and Russia on the need to extend a crude output cut by OPEC and other producing countries of 1.8 million barrels per day (bpd) until the end of March next year. Other OPEC states are expected to support the move at a meeting on May 25.

Russian Energy Minister Alexander Novak said the proposed extension of output cuts aimed to bring global commercial oil inventories down to the five-year average and stabilize the market.

U.S. bank Goldman Sachs said the deal would likely extend the oil price rebound "although the rally so far...has remained modest compared to the move that occurred last year when the OPEC cuts were first announced."

James Woods, investment analyst at Rivkin Securities, said world oil supplies would probably remain plentiful, even if OPEC extended the production cuts. He said "rising U.S. production and record inventories have kept upside limited and a nine-month extension at this stage is unlikely to break that."

Goldman Sachs said output would increase from OPEC members that were exempt from the cuts. Also, U.S. oil production is up more than 10 percent since mid-2016.

"These combined volumes could largely offset the benefit of the extended cuts," Goldman Sachs said, keeping its average Brent price forecast for the third quarter at $57 per barrel.

China Eyes U.S. Energy After Inking $20 Billion in Deals

China is setting its sights on U.S. energy as a growing reliance on imports forces it to look beyond traditional suppliers, according to the head of the country’s biggest oil and gas company.

China National Petroleum Corp. will import more crude oil and natural gas from the U.S. and will consider participating in America’s growing liquefied natural gas export industry, Chairman Wang Yilin said in an interview Sunday with Bloomberg TV on the sidelines of the Belt and Road Forum in Beijing. The energy giant will sign $20 billion in deals during the two-day event, a meeting of countries involved in China’s initiative to connect Europe, Asia and Africa through infrastructure and investment.

“The U.S. has very rich oil and gas resources, and as China pursues a diversification of its crude supply the U.S. will of course be one of the sources.” Wang said. “We will consider exploring cooperation in areas such as jointly developing liquefied natural gas facilities and gas transport.”

China’s growing use of U.S. energy is taking CNPC beyond the Belt and Road plan, which is President Xi Jinping’s cornerstone trade initiative. Wang’s comments follow a separate deal between China and the U.S. announced Thursday by President Donald Trump’s administration that welcomed the country engaging in long-term contracts with American LNG suppliers.

CNPC currently has more than 50 joint projects under way in 19 countries taking part in Belt and Road, according to Wang. In Central Asia and Russia, they’re mainly focused on natural gas, while in African and Middle Eastern nations the majority of projects concern oil.

Falling Production

The world’s biggest energy user is becoming more reliant on overseas crude supplies as production at home plummets after its state-run firms -- including CNPC’s listed unit PetroChina Co. -- cut spending to cope with the price crash. China has overtaken the U.S. as the world’s biggest oil importer, and emerged in February as the largest buyer of crude from the U.S., which has boosted exports thanks to the country’s shale oil boom.

Though China’s oil giants are raising combined spending for the first time in four years, that may not be enough to halt the drop in domestic crude output, especially as focus shifts toward natural gas, according to the International Energy Agency. Production in the first four months dropped 6.1 percent from the same period a year ago, extending the record pace of declines in 2016. Imports are up more than 12 percent during that period.

“We need to speed up our cooperation with resource countries to develop assets to meet China’s growing need for oil and gas,” Wang said. “By doing this, we can balance the higher reliance on imports with better use of foreign assets.”

PetroChina rose 0.2 percent to HK$5.32 as of the noon trading break in Hong Kong, compared with a 0.6 percent gain in the city’s benchmark Hang Seng Index.

Aramco, Gazprom

The $20 billion in deals to be signed during the Belt and Road Forum include Saudi Arabian Oil Co. taking a stake in the company’s Yunnanrefinery, a $4 billion agreement for a natural gas processing plant in Azerbaijan with the State Oil Co. of Azerbaijan, gas storage and gas-fired power projects with Russia’s Gazprom PJSC and a geothermal project in Kenya, according to CNPC.

The agreement with the U.S. announced last week could pave the way for a second wave of investment in U.S. LNG terminals, according to Wood Mackenzie Ltd. American supplies accounted for almost 7 percent of China’s LNG imports in March, customs dada show. The nine cargoes sent over the last year to China from Cheniere Energy Inc., the first U.S. exporter from the country’s lower 48 states, were sold on a so-called spot basis, rather than under long-term contracts, the consulting company said.