Home GCC Saudi Arabia Oil steady near $50 after surging on Saudi output cut The kingdom’s pledge comes amid more stay-at-home orders and travel restrictions to rein in a surge of infections by Bloomberg January 6, 2021 Oil was steady in Asia after surging to a 10-month high on a surprise Saudi Arabian pledge to cut an extra 1 million barrels a day of crude output in February and March. Futures in New York traded near $50 a barrel after jumping 4.9 per cent on Tuesday. OPEC+ reached an agreement following two days of talks to curb supply over the next two months. The move by Saudi Arabia, the group’s de-facto leader, paved the way for other producers to keep supplies unchanged and for Russia and Kazakhstan to lift output by a combined 75,000 barrels a day in both February and March. The kingdom’s pledge, which Russia’s deputy prime minister called a “new year gift” to the oil market, comes amid more stay-at-home orders and travel restrictions to rein in a surge of infections. Germany extended its lockdown, while Dalian in China asked people considered more vulnerable to Covid-19 to leave the city due to an outbreak there. OPEC+ faces a complex demand outlook as it decides how to move forward with its output plan month by month. There are indications that parts of the global economy are staging a comeback, with a gauge of US manufacturing expanding last month at the fastest pace since 2018. But other areas that seemed to be recovering are wavering, with Goldman Sachs Group saying the Saudi move likely reflects expectations for demand to weaken further. “The 1 million barrel per day reduction is nothing to scoff at and it will tip the market back into a supply deficit for the first quarter at least, even if demand is set to dip slightly on the new virus strain,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. “The message is now loud and clear that Saudi Arabia is there to guard the fragile equilibrium in this market.” Prices West Texas Intermediate for February delivery added 0.2 per cent to $50.04 a barrel on the New York Mercantile Exchange as of 12.29pm in Singapore Brent for March settlement rose 0.6 per cent to $53.91 on the ICE Futures Europe exchange after closing up 4.9 per cent on Tuesday Crude futures jumped 4.1 per cent to 323.8 yuan a barrel on the Shanghai International Energy Exchange after dropping 2.8 per cent on Tuesday The Saudi decision and the rally in prices may give the US shale industry some room to begin snapping up market share, though financial hardships from the pandemic and investor expectations remain obstacles. It’s an especially sweet gift for US shale drillers, said Helima Croft, chief commodities strategist at RBC Capital Markets. Shale stocks subsequently surged. The American Petroleum Institute reported that US crude inventories fell by 1.66 million barrels last week, according to people familiar with the data, which would be the fourth straight weekly drop if confirmed by official figures due Wednesday. The API reported sharp jumps in gasoline and distillates stockpiles, however, a sign the virus is damping demand for fuel. The oil futures curve reacted to the Saudi move. Brent’s prompt timespread was 12 cents in backwardation – where near-dated prices are more expensive than later-dated ones – compared with a 7-cent contango on Monday. That’s a bullish signal that the market is comfortable with the supply-demand outlook. Tags Asia Brent oil Russia Saudi Arabia 0 Comments You might also like Saudia, Delta Air Lines team up to expand global network OPEC+ panel sticks to output policy, doubles down on compliance OPEC+ doing ‘noble’ job of balancing oil market, says UAE UAE’s DAE, AXA clinch deal as battle over jets ‘lost’ in Russia kicks off