Arab News, Thursday, Jan 7, 2021 | Jamadi Al Awwal 23, 1442
Oil rises to 10-month high after Saudi output cut, US inventory draw
Saudi Arabia: 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%, to $54.39 a barrel at 2:20 p.m. EST (1920
GMT). Earlier in the session, it hit a high of $54.73 a barrel, a level not seen
since Feb. 26, 2020.
US West Texas Intermediate (WTI) futures were up 75 cents, or 1.5%, 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 Jan. 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%,” 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 (bpd) in
February and March, after a meeting of OPEC+, which groups the Organization 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.
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.