NEW YORK: Oil prices climbed more than 5% on Tuesday after news that Saudi Arabia will make voluntary cuts to its oil output in February, while tension simmered following Iran’s seizure of a South Korean vessel.
Brent crude futures rose $2.62, or 5.1%, to $53.71 a barrel by 1:24 p.m. EST (1824 GMT). US West Texas Intermediate crude rose $2.51, or 5.3%, to $50.13 a barrel.
Two sources from OPEC+ producers said Saudi Arabia would cut output by more than 400,000 barrels per day (bpd) in the next two months on top of its existing cuts. The cuts are part of a deal to persuade most producers from the group consisting of the Organization of the Petroleum Exporting Countries and allies, to hold output steady amid concerns that new coronavirus lockdowns will hit demand.
“If the Saudis are going to shoulder the load and take oil off the market, that changes the dynamic quite a bit,” said Phil Flynn, senior analyst at Price Futures Group in Chicago. “It looks like the Saudis are taking the role as the global swing producer.”
OPEC+ resumed talks on Tuesday after reaching a deadlock over February oil output levels this week.
An OPEC document dated Jan. 4 showed the group was studying a range of scenarios including more production, no change or cutting output by 500,000 bpd in February.
“It is no secret that the bullish kick which crude markets have received through much of the last quarter (crude rose almost 30% in Q4) and again this morning is supported by a particularly hands-on approach from OPEC+ to tighten crude markets and bring inventories lower through 2021,” JBC Energy analysts said in a note.
Tensions around OPEC member Iran’s seizure of a South Korean vessel continued, as Iran said the Asian country owed it $7 billion.
Still, bearish elements loom for the market. England began a new lockdown on Monday as its coronavirus cases surged. Coronavirus lockdowns have weighed on fuel demand since early last year.
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