NEW YORK (Reuters) – Oil prices extended gains on Wednesday, climbing to their highest since late February, after Saudi Arabia announced a massive voluntary cut in production and as U.S. crude oil inventories fell in the last. week.
Brent crude oil was up 88 cents, or 1.7%, to $ 54.48 a barrel at 11:24 am EST (1524 GMT). At the start of the session, it hit a high of $ 54.63 a barrel, a level not seen since February 26, 2020.
US West Texas Intermediate (WTI) futures rose 75 cents, or 1.5%, to $ 50.68 a barrel. The contract hit $ 50.71 a barrel, the highest since February 25.
Both contracts were up about 5% on Tuesday.
U.S. crude oil inventories fell sharply as fuel inventories rose, the Energy Information Administration said Wednesday, and 2020 ended with a steep drop in overall demand due to the coronavirus pandemic. [EIA/S]
Crude oil 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 decline of 2.1 million barrels. The decline in crude oil inventories is typical of the end of the year, when energy companies withdraw barrels from storage to avoid heavy tax bills.
“We have had a very substantial crude oil inventory draw aided by a second week of very robust crude oil exports and an increase in refinery utilization that now exceeds 80%,” said Andrew Lipow, president of Lipow Oil Associates in Houston.
The high refinery consumption could be short-lived, said Bob Yawger, director of energy futures at New York’s Mizuho.
“We’ve burned a lot of crude oil to make a lot of products, and there’s no demand for the product,” he said. “You can’t run at such a fast pace forever, with numbers what they are.”
Saudi Arabia, the world’s largest oil exporter, said on Tuesday it will make further voluntary oil production cuts of 1 million barrels per day (bpd) in February and March, following an OPEC + meeting, which brings together the Organization of Petroleum Exporting Countries and other producers, including Russia.
With the rapid spread of coronavirus infections, manufacturers are wary of further impact on demand.
OPEC + agreed that most producers will keep production stable in February and March, allowing Russia and Kazakhstan to increase production by a modest 75,000 barrels per day in February and another 75,000 barrels per day in March.
“Despite this bullish supply deal, we believe the Saudi decision likely reflects signs of weakening demand as blocks return,” Goldman Sachs analysts wrote in a statement, while maintaining a late 2021 forecast for Brent of 65. dollars a barrel.
OPEC oil production increased for the sixth month in December to 25.59 million barrels per day, according to a Reuters survey, supported by a further recovery in Libyan production and minor increases elsewhere.
Additional reporting by Aaron Sheldrick in Tokyo and Ahmad Ghaddar in London. Editing by Louise Heavens, Mark Potter and David Gregorio