Oil futures climbed Wednesday, with U.S. prices ending above $50 a barrel for the first time in 11 months, as weekly U.S. crude supplies dropped by 8 million barrels, down a fourth straight week.
Prices also continued to find support from Saudi Arabia’s announcement Tuesday of a unilateral production cut.
The Energy Information Administration reported a “bullish large draw to crude inventories to close out the year, driven by ad valorem tax considerations,” said Matt Smith, director of commodity research at ClipperData.
That tax is assessed based on the volume and price of crude-oil inventories, so oil companies look to shed these taxable assets from their books as the year’s end approaches.
The EIA reported that U.S. crude inventories fell by 8 million barrels for the week ended Jan. 1. That compared with the decline of 1.2 million barrels forecast by IHS Markit analysts. The American Petroleum Institute on Tuesday reported a 1.7 million-barrel fall in crude supplies.
West Texas Intermediate crude for February delivery
CL.1,
CLG21,
rose 70 cents, or 1.4%, to settle at $50.63 a barrel on the New York Mercantile Exchange.
March Brent crude
BRN00,
BRNH21,
the global benchmark, climbed by 70 cents, or 1.3%, at $54.30 a barrel on ICE Futures Europe.
Both benchmarks closed Wednesday at their highest levels since late February.
Crude futures jumped on Tuesday after Saudi Arabia announced it would cut output by an additional 1 million barrels a day in February and March. The announcement came after a difficult meeting of the Organization of the Petroleum Exporting Countries and its allies, a group known as OPEC+, that saw most major producers agree to hold output steady while Russia and Kazakhstan would boost production by a combined 75,000 barrels a day.
Read: In ‘gesture of good will,’ Saudi Arabia to cut more oil output as Russia, Kazakhstan bump up production
Tariq Zahir, managing member at Tyche Capital Advisors, told MarketWatch Wednesday, that over the coming weeks, some OPEC+ countries will likely “start to cheat on the promised cuts and demand will continue to remain extremely weak.”
Russia has already been increasing production, albeit by a small amount, he said. “The risk of the downside is there in the next few weeks.”
Saudi energy minister Prince Abdulaziz bin Salman said that the Saudi cut was a clear signal of unwavering Saudi resolve and a gift to an oil market “that is facing near-term demand uncertainty because of the emergence of the new COVID-19 strain and cascading government lockdown restrictions,” Helima Croft, head of global commodity strategy and MENA research at RBC Capital Markets, wrote in a research note dated Tuesday.
Saudi Arabia had an “exceptionably good OPEC+ meeting,” she said, but “we are cognizant that sands can quickly shift in this unwieldy producer alliance.”
Croft added that “we will be keeping a close eye on Moscow’s next moves as we continue to contend that its oil price priorities may increasingly diverge from the rest of the OPEC+ members over the year ahead.”
Meanwhile, in a note, analysts at Goldman Sachs said the potential “return of more aggressive lockdowns is already weighing on demand.”
They lowered their outlook for January and February oil demand to 92.5 million barrels per day, from an upwardly revised demand level of 93.5 million barrels per day.
Taking a look at the petroleum products Wednesday, bearish supply increases for gasoline and distillate supplies partially offset the reaction to the crude supply decline.
“Products saw large builds amid lowly implied holiday demand,” said Smith, adding that “gasoline demand remains 12% lower year-over-year, while jet fuel demand lags by a lofty 38%.”
The EIA reported that gasoline supply climbed by 4.5 million barrels, while distillate stockpiles were up by 6.4 million barrels last week. IHS Markit had forecast supply increases of 1.4 million for gasoline and 2.2 million for distillates.
On Nymex, February gasoline
RBG21,
rose 1.6% to $1.475 a gallon, while February heating oil
HOG21,
tacked on nearly 0.7% to $1.5287 a gallon.
February natural gas
NGG21,
settled at $2.716 per million British thermal units, up 0.5%.
The EIA will issue its weekly update on U.S. natural-gas supplies on Thursday. On average, analysts polled by S&P Global Platts expect the data to show a decline of 139 billion cubic feet — bigger than the five-year average supply fall of 115 billion cubic feet.
