Oil Prices Soar to 11-Month High Following Unexpected Saudi Cuts and US Crude Supply Decline
Saudi Arabia’s recent voluntary output cuts, coupled with reduced oil inventories in the US, have spurred optimism in energy markets and brought crude oil prices to the highest level since February 2020.
American West Texas Intermediate and international benchmark Brent futures were the subject of another consecutive positive session on Friday, increasing by approximately 1.7%. The futures reached levels not seen in nearly a year, with Brent rising to more than $55 per barrel and WTI trading at approximately $52 per barrel on Friday.
The latest increases for energy markets were primarily the result of further Saudi cuts, which were revealed earlier in the week. The major oil exporter promised to cut its oil output by more than 1 million barrels per day (bpd) between February and March, in addition to the existing output caps that are par of the current OPEC+ agreement. Riyadh’s latest production cuts amount to approximately 1% of the world’s oil supply.
Although other exporters, such as Russia, were permitted to partially increase their output over the next several months, the OPEC+ quotas are still applicable. As of current, the production caps stand at 7.2 million bpd for the month of January, and will be followed by a smaller reduction of 7.125 million bpd and 7.05 million bpd in the two months thereafter, respectively.
Besides the supply cuts from OPEC and allies, recent data released by the Energy Information Administration (EIA) suggests that US crude oil inventories decreased by 8 million barrels during the week ending on January 1. The decline surpassed expectations, as analysts at IHS Markit predicted a drop of 1.2 million, while analysts polled by Reuters forecast an inventory decline of approximately 2.1 million barrels.
Information for this briefing was found via Reuters, EIA, and IHS Markit. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.