Oil extends gains after surprise Saudi output cut

Oil prices extended gains on Wednesday, rising to their highest since late February, after Saudi Arabia announced a big voluntary production cut, and as an industry report showed US inventories fell last week.

Brent crude rose $0.25, or 0.5%, to $53.85 a barrel at 1321 GMT. Earlier in 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 were up $0.07, or 0.1%, to $50 a barrel. The contract hit a session high of $50.59 a barrel, its highest since February 25.

Both contracts were up about 5% on Tuesday.

Saudi Arabia, the world’s biggest oil exporter, on Tuesday announced 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 Organisation of the Petroleum Exporting Countries’ producers and others, 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.

US crude oil inventories fell by 1.7 million barrels in the week to January 1 to 491.3 million barrels, data from industry group American Petroleum Institute showed late on Tuesday.

Official US Energy Information Administration inventory data for the week to January 1 is due on Wednesday.