Oil touched a 10-month high above $50 a barrel after Saudi Arabia pledged to cut an extra 1 million barrels a day of crude output in February and March.
Futures in New York added 0.9 per cent after the kingdom’s surprise move drove prices up 4.9 per cent on Tuesday. OPEC+’s agreement, which will see most producers keep output steady while the Saudis cut, prompted a sharp rally in the structure of the oil futures curve as traders anticipated lower supply in the coming months.
The Saudi decision, which Russia’s deputy prime minister called a “new year gift” to the market, comes as governments enforce more stay-at-home orders and travel restrictions to curb a surge in virus infections. Goldman Sachs Group Inc. said the Saudi move reflects expectations for weaker oil demand, cutting its consumption forecasts for January and February.
OPEC+’s agreement diverges from earlier plans to add as much as 500,000 barrels a day to the market in February, underscoring the complex outlook. Still, there are indications that parts of the global economy are staging a comeback, with a gauge of U.S. manufacturing expanding last month at the fastest pace since 2018.
Saudi Arabia’s output plan is “very bullish,” said Gary Ross, a veteran oil-market watcher and chief executive officer of Black Gold Investors LLC. “The worst of the virus is right now, and the impact on demand is nowhere near as bad as it was back in April.”
- West Texas Intermediate for February delivery advanced 0.9 per cent to $50.36 a barrel as of 10:40 a.m. London time
- Brent for March settlement rose 1.4 per cent to $54.36
The Saudi decision could be a boon to U.S. shale drillers, potentially giving them room to expand their market share, though financial hardships from the pandemic and investor expectations for returns remain obstacles. Shale stocks surged on Tuesday, and U.S. crude prices for the rest of the year settled at their highest level since February.
The deeper cuts came as a surprise to Asian oil refiners ahead of their expected receipt of cargoes for February in the coming days. Since the decision, the Middle Eastern Dubai benchmark has rallied sharply with nearby price gains outpacing those of later contracts.
© 2021 Bloomberg L.P.