Oil prices jump on OPEC production cut rumors

Oil prices jumped Monday, lifted by the prospect of longer production cuts by the Organization of the Petroleum Exporting Countries and its allies as well as evidence of improving economic conditions in China.

Brent crude rose 1.7 percent to $61.49, and West Texas Intermediate futures rose 1.9 percent to $56.19, both partially recovering from steep declines that took place in thin holiday trading on Friday.

Monday's advance came after The Wall Street Journal reported that Saudi Arabia will push for OPEC and its partners to extend restrictions on oil output through mid-2020. The cartel and its Russia-led allies are set to meet in Vienna on Dec. 5 and 6, and will debate whether to prolong their agreement to reduce output by 1.2 million barrels a day.

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The pact is due to expire in March, but Persian Gulf officials said Saudi Arabia is seeking to push back this date to prop up the share price of Saudi Aramco in its initial public offering. The state-run oil company is expected to publish its IPO pricing on Thursday.

Oil "is bouncing back from a very sharp fall" at the end of last week, said Olivier Jakob, founder of Swiss-based energy consulting firm Petromatrix. He said oil traders had greeted comments from Iraqi oil minister Thamir Ghadhban to reporters on Sunday that OPEC would consider deepening its output cuts by around 400,000 barrels a day.

A key question for the oil market is whether Russia will commit to extend the reductions at this week's meeting or seek to delay the decision until next year.

Helima Croft, managing director and global head of commodity strategy at RBC Capital Markets, thinks Moscow will support a deal to lower output by several more months but said its partnership with the oil cartel is increasingly unstable. "The slew of lucrative deals that President Putin signed on his October visit to Riyadh and Abu Dhabi are...enough to keep Russia at the helm of the OPEC+ union," she said in a note but added that Moscow may not comply fully with the terms of any agreement.

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The rise in oil prices on Monday came alongside a broad advance in stocks and other assets that are sensitive to the world economy after two indicators suggested Chinese factory output rose in November. The private Caixin manufacturing purchasing managers index rose to 51.8 from 51.7 in October, Caixin Media Co. and IHS Markit said, while China's official manufacturing PMI rose to 50.2 from 49.3. A reading above 50 suggests activity is expanding.

China is the world's largest consumer of industrial commodities, and rising demand for oil there has supported crude prices in recent weeks. The country's oil demand increased by 640,000 barrels a day compared with the year before in the third quarter, the International Energy Agency said in mid-November. For 2019 as a whole, the IEA expects China to consume 13.6 million barrels on average each day -- a record high.

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Still, some investors are cautious about the outlook for oil prices. Weak spots remain in the world economy, particularly in Europe, and oil production in the U.S. continues to rise, lifting supplies.

Nicolas Robin, who manages commodities investments for Columbia Threadneedle Investments in London, said it "will be difficult for the market to trade much higher" than its current levels. Columbia has been betting that prices would rise, but recently trimmed the size of the wager.