Oil and Gas

Global pact to limit oil supply likely to extend, but demand increase crucial to sustain prices: Analyst

OPEC agreement 'will be extended'
OPEC agreement 'will be extended'

The current attempt to limit the supply of oil may have boosted prices, building up a case for such effort to be extended, but a pick-up in demand is what needed to support a bull case for oil, an analyst told CNBC Monday.

That viewpoint came after a joint committee of ministers from the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC nations agreed over the weekend to review whether they should extend a pact to limit oil supply by another six months, according to a Sunday statement.

That news lifted both Brent and WTI in early Asia trade.

Alan Bannister, regional director of oil content at S&P Global Platts, said on CNBC's "Squawk Box" that the positive impact on prices from the current pact means it will likely be extended.

"Admittedly, (the current agreement came) at the cost of some member countries to reduce the amount of crude oil they can sell, but I think they will be broadly satisfied that the agreement they came to and the steps they're taking are leading to a higher price than would have been the case otherwise," he said.

However, rising domestic production in the United States and increased shale production could continue to hamper such effort to support oil prices. For prices to climb further, demand has to pick up, Bannister said.

"We're seeing that to a point. The case for an increase in demand in emerging markets is strong, particularly with rising sales of new vehicles and two-wheelers," he said.

OPEC and 11 other leading producers including Russia agreed to cut output by a combined 1.8 million barrels per day for six months from January this year. The joint committee said in its Sunday statement that it is satisfied with the level of conformity so far.