May 22 (UPI) -- A narrative from the head of OPEC that efforts to balance the market paid off led to a strong rally in crude oil prices Monday despite signs of sluggish growth.
Russia and Saudi Arabia sparked a rally last week in crude oil prices when they suggested extending a multilateral agreeing to curb production into early 2018, instead of the original proposal of six months. Talk and growing support for that effort helped re-establish a $50 floor under crude oil prices that was threatened by resiliency in U.S. shale oil.
Speaking from the sidelines of a conference on India's energy sector, Mohammad Barkindo, the secretary general of the Organization of Petroleum Exporting Countries, said commercial crude oil inventories across most major industrial economies were down in April for the third month in a row. Storage held offshore, meanwhile, was down 40 million barrels since the start of the year.
"We are heading in the right direction," he said in his prepared remarks. "In terms of where we view this process today, to put it simply, we are seeing some light at the end of the tunnel."
That was enough to give support to the rally in crude oil prices that started last week. The price for Brent crude oil was up 1.2 percent about a half hour before the start of trading in New York to $54.25 per barrel. West Texas Intermediate, the U.S. benchmark for the price of oil, was up 1.25 percent to $51.31 per barrel.
Tamas Varga, an analyst with London broker PVM, said there's a bullish sentiment building around the latest OPEC rhetoric. By his read, OPEC is on the right track with its efforts to balance the market and global oil demand is on pace to grow faster than supplies.
"As there is a chance of more oil producers joining the deal, deeper reduction is a realistic possibility," he said in a daily emailed newsletter. "The signs are encouraging and an even stronger bullish message would be sent out if OPEC itself were willing to reduce its own production below the current ceiling."
Brent crude oil prices are up about 3 percent from one week ago and 5 percent, or about $2.50 per barrel, higher than at the start of the month. Crude oil prices started May on a down note after the U.N. economic and Social Commission for Asia and the Pacific reported a softening in the Chinese economy, the second-largest behind the United States.
Competing against the OPEC narrative, however, was data from the Organization for Economic Cooperation and Development that showed a slowdown in major economies from the United States to France were dragging on broader global momentum.
"Quarterly growth of real gross domestic product in the OECD area decelerated sharply to 0.4 percent in the first quarter of 2017, compared with 0.7 percent in the previous quarter, according to provisional estimates," the organization stated.