Crude Oil Jumps to 11 Months High On Thursday as Saudi Arabia Announces Big Cut

Global oil prices extended their bullish runs on Thursday morning after Saudi Arabia announced it will cut crude oil production by 1 million barrels per day starting from February and planned to extend it through March.

Saudi Arabia’s decision to reduce production cut will more than offset 75,000 barrels per day extra production expected from Russia and Kazakhstan.

This coupled with the large US inventories draw recorded on Wednesday bolstered Brent crude oil by $3.5 to $54.37 per barrel while the US West Texas Intermediate (WTI) gained $3.2 to $50.90 per barrel.

In the week ended January 1, 2021, US crude oil inventories dropped by 8 million barrels to 485.5 million barrels, more than the 2.1 million barrels decline projected by analysts.

“We had a very substantial crude oil inventory draw helped by a second week of very robust crude oil exports as well as an increase in refinery utilization now exceeding 80%,” said Andrew Lipow, president of Lipow Oil Associates in Houston.

However, Bob Yawger, Director, Energy Futures at Mizuho in New York, said the high utilisation of crude oil by refinery may be short-lived.

“We’ve burned through a lot of crude oil to make a lot of product, and there’s no demand for the product,” he said. “You can’t run at that high a rate forever, with the numbers what they are.”

Also, the tensions in the Middle East after Iran announced it has seized oil tank supported prices.

“Away from the OPEC+ poker table, the oil market found a helping hand in the Middle East, where tensions are flaring again,” said Bjornar Tonhaugen, head of oil markets at Rystad Energy.

“Iran seizing a tanker creates, again, instability in the region and questions are raised again over the reliability of the oil transport Gulf sea roads. If the situation doesn’t deescalate quickly, oil prices will benefit from the unpredictability.”