Oil Rises Again On Surprise Stockpile Draw And Aftermath Of Saudi Reduction Pledge

Meanwhile, more experts express hope for 2021 demand recovery: File Image/Pixabay

Oil prices on Wednesday jumped to their highest level since February on the strength of a sharp fall in U.S. crude stocks, as well as Saudi Arabia's announcement during the previous session that it will make a big voluntary production cut in coming months. 

After it was disclosed that crude inventories fell by 8 million barrels in the week to January 1 compared to expectations of a 2.1 million drop, Brent gained 32 cents to trade at $53.92 per barrel; West Texas Intermediate crude futures settled 70 cents higher at $50.63 per barrel.

Andrew Lipow, president of Lipow Oil Associates, said, "We had a very substantial crude oil inventory draw helped by a second week of very robust crude oil exports as well as an increase in refinery utilization now exceeding 80 percent."

Meanwhile, Goldman Sachs, which for months had predicted a dramatic rebound in demand for 2021, said new factors have caused it "to reiterate our bullish oil view."

The bank cited Saudi Arabia's pledge to cut its output by more than required under its agreement with the Organization of the Petroleum Exporting Countries (OPEC), and a possible tight market in the second quarter of 2021 will also "likely support prices in coming weeks." 

Goldman expected sustained backwardation and lower implied volatility and saw year-end Brent prices at a prepandemic level of $65 per barrel.

For his part, Stephen Brennock, analyst at PVM Oil Associates, believes oil prices will have "limited upside potential" for the first half of 2021 and added that crude balances will "tighten further as the impact of the global vaccination drive begins to be felt in earnest; this in turn should set the stage for a sustain ed price recovery."

Also on Wednesday, a Reuters survey showed that OPEC's output rose for a sixth month in December, up 280,000 barrels per day (bpd) from November, due partly to a recovery in production from  Libya; the cartel is expected to further boost production this month; however, Carsten Fritsch, analyst at Commerzbank, remarked that "The additional production cut by Saudi Arabia will probably prevent the oil market from becoming oversupplied, which risked happening otherwise."