Oil prices extended gains on Wednesday, rising to their highest since last February, after Saudi Arabia announced a big voluntary production cut, and as US crude inventories declined in the latest week.
Brent crude was up 79 cents, or 1.5 per cent, to $54.39 a barrel at 2:20 p.m. EST (1920 GMT). Earlier in the session, it hit a high of $56.73 a barrel, a level not seen since Feb. 26, 2020.
U.S. West Texas Intermediate futures were up 75 cents, or 1.5 per cent, to $50.66 a barrel. The contract touched $50.94 a barrel, its highest since late February.
US crude stocks fell sharply while fuel inventories rose, the Energy Information Administration said on Wednesday, and 2020 came to a close with a sharp decline in overall demand due to the coronavirus pandemic.
Crude inventories fell by 8 million barrels in the week to January 1 to 485.5 million barrels, exceeding analysts’ expectations in a Reuters poll for a 2.1 million-barrel drop.
The drop in crude stocks is typical for the end of the year, when energy companies take barrels out of storage to avoid hefty tax bills.
“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.
“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.”
Saudi Arabia, the world’s biggest oil exporter, said on Tuesday it would make additional, voluntary oil output cuts of 1 million barrels per day in February and March, after a meeting of OPEC+, which groups the Organisation of the Petroleum Exporting Countries and other producers, including Russia.
With coronavirus infections spreading rapidly, producers are wary of a further hit to demand.
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.
“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.
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OPEC oil output rose for a sixth month in December to 25.59 million bpd, a Reuters survey found, buoyed by further recovery in Libyan production and smaller rises elsewhere.