Oil held near a 10-month high after Saudi Arabia’s surprise pledge to cut an extra 1 million barrels a day of crude output in February and March.
Futures in New York rose 0.2 per cent, but gave up some earlier gains after failing to rise above the lows set in June 2019, a level seen as providing technical resistance. Saudi Arabia’s pledge to cut output prompted a sharp rally on Tuesday in the structure of the futures curve and headline prices.
The kingdom’s decision, which Russian Deputy Prime Minister Alexander Novak called a “new year gift” to the market, comes as governments enforce more stay-at-home orders and travel restrictions to curb a surge in virus infections.
Goldman Sachs Group Inc., however, cautioned that the move reflects expectations for weaker oil demand, cutting its consumption forecasts for January and February.
“If the Saudi self-described gesture of ‘goodwill’ is in keeping with earlier warnings to speculators by oil minister Prince Abdulaziz bin Salman not to test the resolve of the kingdom, it is also an implied acknowledgment of a weaker oil balance” in the first quarter than previously thought, said Harry Tchilinguirian, oil strategist at BNP Paribas.
Focus is also now turning to weekly U.S. inventory data, due later Wednesday. The American Petroleum Institute reported that crude stockpiles fell by 1.66 million barrels last week, which would be a fourth weekly drop.
The Saudi decision could be a boon to U.S. shale drillers, potentially giving them room to expand their market share, though financial hardships from the pandemic and investor expectations for returns remain obstacles. Shale stocks surged on Tuesday, and prices of U.S. crude futures for delivery in the rest of the year settled at their highest level since February.