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Oil futures rose Tuesday, with U.S. prices touching highs above $50 for the first time since February, as the Organization of the Petroleum Exporting Countries and its allies reportedly reached an agreement to essentially roll over current production curbs into February, but with Saudi Arabia voluntarily taking on a larger reduction.
OPEC and its Russia-led allies, a group known as OPEC+ will maintain output levels through February, delaying any increase until March, The Wall Street Journal reported, citing officials familiar with negotiations. OPEC+ in December voted to relax curbs by 500,000 barrels a day beginning on Jan. 1 to 7.2 million barrels a day.
Saudi Arabia, however, will carry a greater burden of the oil-output cuts, as Russia and Kazakhstan are allowed to boost production in February by a combined 75,000 barrels a day, Bloomberg reported, citing comments from delegates.
OPEC+ deadlocked Monday over whether to further relax output curbs in February, resulting in further talks Tuesday.
“A proposed unilateral cut by Saudi Arabia from February is a groundbreaking statement that shows the oil giant is not only ready to bite the bullet and keep taps tight, but it also recognizes the short-term demand risk and is ready to protect its export prices by tightening supply,” said Bjornar Tonhaugen, head of oil markets at Rystad Energy, in emailed commentary.
“Compared to the Saudi initiative, Russia seems to be in a different game,” he said. “It’s hard to see a deal where non-compliant Russia increases its output, while by-the-rules player Saudi Arabia makes up for it.”
If the plan is confirmed, and the Saudis cut output, “prices are definitely in for better days in the first quarter of 2021,” said Tonhaugen.
Against that backdrop, West Texas Intermediate crude for February delivery CL.1, +4.56% CLG21, +4.56% rose $2.15, or 4.5%, to $49.77 a barrel on the New York Mercantile Exchange after posting a loss of nearly 1.9% Monday. Prices climbed to as high as $50.05, their highest level since February 2020.
March Brent crude BRN00, +4.11%, the global benchmark, gained $1.91, or 3.7%, to $53 a barrel on ICE Futures Europe.
Meanwhile, “away from the OPEC+ poker table, the oil market found a helping hand in the Middle East, where tensions are flaring again,” said Tonhaugen.
Iran on Monday started enriching uranium up to 20% at an underground facility and seized a South Korean-flagged oil tanker in the Strait of Hormuz.
“Iran seizing a tanker creates, again, instability in the region and questions are raised again over the reliability of the oil transport Gulf sea roads,” Tonhaugen said. “If the situation doesn’t deescalate quickly, oil prices will benefit from the unpredictability.”
“Iran’s decision to continue its uranium enrichment program is initially likely to rule out any possibility of U.S. sanctions being lifted in the near future by President-elect [Joe] Biden, meaning that Iran will not return to the export market for now,” wrote analysts at Commerzbank, in a note.
Back on Nymex, prices for petroleum products moved higher along with oil. February gasoline RBG21, +4.55% rose 4% to $1.4284 a gallon and February heating oil HOG21, +3.28% added 3.3% to $1.5105 a gallon.
The Energy Information Administration will release its weekly data on U.S. petroleum supplies on Wednesday. Analysts at IHS Markit forecast a decline of 1.2 million barrels in crude supplies for the week ended Jan. 1. They also expect inventory increases of 1.4 million for gasoline and 2.2 million for distillates.
Natural-gas futures were up strongly Tuesday amid forecasts for some cooler weather in parts of the U.S. that may boost demand for the heating fuel.
February natural gas NGG21, +5.08% rose 4.8% to $2.706 per million British thermal units following a rise of nearly 1.7% on Monday.
