Oil posted the biggest weekly gain since late September last year as Saudi Arabia’s plan to slice output spurred a surge in physical crude buying.
Futures in New York advanced US$3.72 this week and Brent oil topped US$55 a barrel for the first time since February last year.
Saudi Arabia’s pledge earlier this week to cut production by 1 million barrels a day next month and in March has made for a tighter supply outlook sooner than anticipated.
Meanwhile, prospects for additional stimulus under the administration of US president-elect Joe Biden spurred broader market gains.
Saudi Arabia’s surprise cut appears to have caught some Asian buyers by surprise and demand for US crude for export to Asia has gained this week.
China International United Petroleum & Chemical Corp (中國國際石化聯合), the trading arm of China’s largest refiner, bought its eighth cargo of North Sea crude in a pricing window run by S&P Global Platts this week and was seeking more in what might be the heaviest buying of its kind on record.
“The decision by the Saudis was a big deal and it’s an underpinning for prices,” said Bill O’Grady, executive vice president at Confluence Investment Management LLC in St Louis. “Clearly, maintaining the oil price was paramount and they were willing to let others take advantage in order to accomplish that.”
West Texas Intermediate (WTI) for February delivery on Friday rose US$1.41 to US$52.24 a barrel, up 7.7 percent for the week.
Brent crude oil for March delivery on Friday rose US$1.61 to US$55.99 a barrel, up 8 percent weekly.
Wholesale gasoline for February delivery on Friday rose US$0.06 to US$1.54 a gallon.
Brent’s move above US$55 a barrel caps a stellar few months for the oil market, with crude emerging as a favored play to bet on COVID-19 vaccines and global reflation.
Saudi Arabia’s pledge has led analysts to rethink their projections for crude’s price recovery.
Citigroup Inc on Friday boosted its price forecasts, saying the kingdom’s actions should accelerate stockpile draws.
Meanwhile, annual commodity index rebalancing might provide another tailwind, with as much as US$9 billion of oil contracts possibly being bought over the five days of activity that start on Friday, Citigroup said.
“It is likely that much of the commodity index buying has been prepositioned for,” so it would not come as a surprise “to see counter-intuitive price action occur next week,” Rabobank NV commodities strategist Ryan Fitzmaurice wrote in a note. “But we still expect commodity markets to attract more attention this year even beyond the rebalance as a weak US dollar and increased fears of inflation bring the alternative asset class back in vogue.”
The kingdom’s shock move has rippled across the oil market this week, with the difference between the price of oil for different months firming markedly in the past few sessions.
WTI’s nearest contract traded at a premium to the following month for the first time since May last year, while the closely watched spread between the nearest two December contracts is at its strongest intraday level since January last year.
There are also bright spots for consumption in spite of the COVID-19 pandemic as the northern hemisphere faces a freezing winter.
Beijing’s coldest weather since 1966 is pushing local energy prices higher and temperatures across much of Europe and Asia are expected to stay below average for most of this month.
Additional reporting by AP
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