Oil prices climbed nearly five percent on Tuesday after news that Saudi Arabia will make voluntary cuts to its oil output, while tension simmered following Iran’s seizure of a South Korean vessel.
Global benchmark Brent crude futures rose $2.51, or 4.9 percent, to settle at $53.60 a barrel. United States benchmark West Texas Intermediate crude rose $2.31, or 4.9 percent, to settle at $49.93 a barrel.
Saudi Arabia will make additional, voluntary oil output cuts of one million barrels per day (bpd) in February and March. The cuts are part of a deal to persuade most producers from the group consisting of the Organization of the Petroleum Exporting Countries and allies to hold output steady amid concerns that new coronavirus lockdowns will hit demand.
“Saudi Arabia put the cherry on the cake and if there is one way to describe what its voluntary cut means for the market, ‘happy hour’ is a pretty fitting term,” said Bjornar Tonhaugen, Rystad Energy’s head of oil markets.
OPEC+ resumed talks on Tuesday after reaching a deadlock over February oil output levels this week.
Saudi Arabia put the cherry on the cake.
An internal OPEC+ document dated January 4 and seen by Reuters news agency highlighted bearish risks and stressed that “the reimplementation of COVID-19 containment measures across continents, including full lockdowns, are dampening the oil demand rebound in 2021”.
Tensions around OPEC member Iran’s seizure of a South Korean vessel continued, as Iran said the Asian country owed it $7bn.
Still, bearish elements loom for the market. England began a new lockdown on Monday as its COVID-19 cases surged. Coronavirus lockdowns have gutted fuel demand since early last year.
On Tuesday, investors awaited industry data on US crude stockpiles, which were seen lower last week for the fourth week in a row, while inventories of refined products likely rose, an extended Reuters poll showed on Tuesday.