Oil prices rally on OPEC's view of balance

NEW YORK, July 12 (UPI) -- Oil prices recovered from steep losses to rally more than 2 percent Tuesday after OPEC said the glut of oil on the market could vanish next year.

Crude oil prices moved slightly higher at the start of trading Monday, only to fall off by the end of the trading session following a report from S&P Global Platts that found output from members of the Organization of Petroleum Exporting Countries was on the rise.

The excess of crude oil on the market, in part a reflection of gains from U.S. shale, helped push oil from above $100 per barrel in 2014 to below $30 per barrel earlier this year.

OPEC in its latest monthly report said output from non-member states is expected to contract, with key producers like the United States and Norway expected to experience the steepest declines. Global oil demand, meanwhile, is expected to increase, OPEC said, and "thus, market conditions will help remove overall excess oil stocks in 2017."

Crude oil prices rallied strongly after the release of the market report. The price for Brent crude oil moved up by 3.5 percent to $47.87 per barrel. West Texas intermediate, the U.S. benchmark price for oil, gained 2.9 percent to start the trading day at $46.06 per barrel.

Some key member states are facing economic and security challenges that could inhibit output, and thereby influence supplies.

"The shadow being cast by Iraq's, Venezuela's and Nigeria's output challenges still looms large over the oil market in the near-term," Paul Hickin, an associate director at S&P Global Platts, said in response to emailed questions.

OPEC, meanwhile, warned of demand strains in Europe because of the potential for financial fallout in the wake of the British referendum in June to leave the European Union. Minutes published Tuesday by the Central Bank of England show board governors viewed risks to financial stability in the region materializing after the vote. Market uncertainty and economic volatility can be expected, they said.

Overall, crude oil prices remain suppressed after breaching the $50 threshold earlier this year. Libyan oil may be returning to the market soon, Iran is expected to unveil new contract terms for the post-sanctions era and Canada, whose output was down by about 1 million barrels per day because of wildfires in May, is slowly returning to full production.