Singapore—0248 GMT: Crude oil futures rose during mid-morning Asian trade Jan. 6, as the market was exuberant after Saudi Arabia announced that it will unilaterally cut output by 1 million b/d in February and March, with a weaker US dollar and a draw in US crude inventories also boosting prices.
At 10:48 am Singapore time (0248 GMT), the ICE Brent March contract was up 48 cents/b (0.89%) from the Jan. 5 settle to $54.08/b, while the February NYMEX light sweet crude contract was up 29 cents/b (0.58%) at $50.22/b. Both markers had jumped by 4.91% and 4.85% on Jan. 5 to settle at $53.60/b and $49.93/b respectively.The upward trajectory comes after Saudi Arabia announced at the end of the Jan. 5 OPEC+ meeting that it will limit its February and March crude production to 8.119 million b/d, well below its quota of 9.119 million b/d, S&P Global Platts reported earlier. This 1 million b/d decline in production will more than compensate for the combined 75,000 b/d increase granted to Russia and Kazakhstan in February and March during the meeting, especially since all other members are expected to hold their production steady.
"We [have cut our production] that with the purpose of supporting our economy, the economies of our friends and OPEC+ countries, and for the betterment of the industry at all levels," Saudi energy minister Prince Abdulaziz bin Salman said in a post-meeting press conference.
Saudi Arabia's decision comes amid a bleak economic outlook, as new and more transmissible mutations of the coronavirus threaten higher infection numbers and as European countries retreat into longer and tougher lockdowns to curb the spread of the virus.
Margaret Yang, DailyFX strategist, told Platts Jan. 6 that Saudi Arabia's decision to slash output is reflective of "a softer energy demand outlook as pandemic waves continue to disrupt travel and business activity in the major western economies."
Prince Abdulaziz also agreed, saying that the output cut was not only a goodwill gesture to other members of the alliance, but also a "preemptive measure" in case global oil demand worsens from rising coronavirus cases.
"We are all hoping that these so-called lockdowns that have taken place recently will be reduced hopefully in the next month or so, and the world economy will continue improving. We've tried to preempt daunting stock levels that we need to reduce," Prince Abdulaziz said.
Meanwhile, a weakening US dollar was also supportive of oil prices, and all eyes are on the Georgia Senate runoff election results, as they are critical to further movements in the US dollar.
"A democratic sweep in the runoff election could potentially hint at further US dollar weakness as the Biden administration will have more leverage to carry out fiscal and infrastructure spending," Yang said.
Crude prices were also buoyed by Jan. 5 data from the American Petroleum Institute, which showed a 1.663 million-barrel draw in US crude inventories in the week ended Jan. 1.
The API data also showed a 5.473 million-barrel and 7.136 million-barrel increase in US gasoline and distillate inventories, but amid the commotion of the OPEC+ meeting and the elections, these large builds in product inventories went mostly unnoticed.
