Oil prices extended gains on Wednesday, rising to their highest since late February, after Saudi Arabia announced a big voluntary production cut, and as an industry report showed US inventories fell last week.
Brent crude rose 25 cents, or 0.5 percent, to $53.85 a barrel at 1321 GMT. Earlier in the session, it hit a high of $54.63 a barrel, a level not seen since Februry 26, 2020.
US West Texas Intermediate (WTI) futures were up 7 cents, or 0.1 percent, to $50 a barrel. The contract hit a session high of $50.59 a barrel, its highest since February 25.
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Saudi Arabia, the world’s biggest oil exporter, on Tuesday announced it would make additional, voluntary oil output cuts of 1 million barrels per day (bpd) in February and March, after a meeting of OPEC+. This is just as other members of the group, including Russia have also agreed to rollover the existing oil output.
This is especially as oil producers are wary of a further hit to demand as a result of the new wave of the coronavirus infections spreading rapidly across the globe.
OPEC+ agreed most producers would hold output steady in February and March while allowing Russia and Kazakhstan to raise output by a modest 75,000 bpd in February and a further 75,000 bpd in March.
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“Despite this bullish supply agreement, we believe Saudi’s decision likely reflects signs of weakening demand as lockdowns return,” Goldman Sachs analysts wrote in a note, though they maintained an end-2021 forecast for Brent of $65 a barrel.
US crude oil inventories fell by 1.7 million barrels in the week to January 1 to 491.3 million barrels, data from industry group the American Petroleum Institute showed late on Tuesday.
“We had a very substantial crude oil inventory draw helped by a second week of very robust crude oil exports as well as an increase in refinery utilization now exceeding 80 per cent,” said Andrew Lipow, president of Lipow Oil Associates in Houston.
High refinery consumption may be short-lived, said Bob Yawger director of energy futures at Mizuho in New York.
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“We’ve burned through a lot of crude oil to make a lot of product, and there’s no demand for the product,” he said. “You can’t run at that high a rate forever, with the numbers what they are.”
Fuel consumption is likely to be subdued, Caroline Bain, chief commodities economist at Capital Economics, said in a note. “Product demand is now in a clear downward trend, no doubt reflecting virus containment measures in many states.”
By Peace Obi
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