All eyes are on the Organization of the Petroleum Exporting Countries ahead of a highly-anticipated meeting later Thursday when the oil group looks set to extend their crude production cuts, but the big downside risk comes from China, an analyst said.
The OPEC and 11 non-members will be negotiating whether to extend an agreement reached in December to cut oil production by about 1.8 million barrels a day in the first half of this year.
"If you wanted to know where the downside risk is, it is not in OPEC's decision or in U.S. driving demand or in global inventories rebalancing. I think China is the big source of concern," said Prestige Economics President Jason Schenker.
Worries about slowing Chinese growth will affect the market, he told CNBC's "The Rundown". The world's second largest economy is also the second largest importer of crude oil behind the U.S.
"If China weakens further, that poses downside risk. But if we see the rebound in the (China Caixin Manufacturing Purchasing Managers Index) and we see Chinese manufacturing PMI as a proxy for global growth improve, then we see some upside potential here," Schenker added.
Crude oil prices were higher on Thursday in Asia on hopes of an extended production cut. U.S. West Texas Intermediate was up 0.7 percent at $51.74 a barrel while European Brent was up 0.8 percent at $54.38 a barrel at noon SIN/HK time.
IHS Energy vice president Victor Shum told CNBC that supply and demand will be balanced for the rest of 2017 with no sharp drawdowns in inventories even with the production cut extended for another six to nine months. Longer or deeper cuts will take "a lot of time and a lot of diplomacy," he said.