Crude futures settled nearly 5% higher Jan. 5 after Saudi Arabia announced it would voluntarily cut output by 1 million b/d, offsetting a modest quota increase granted to Russia and Kazakhstan and pushing total OPEC+ output sharply lower in coming months.
NYMEX February WTI settled $2.31 higher at $49.93/b, and ICE March Brent climbed $2.51 at $53.60/b.
Saudi Arabia has delivered what Russian Deputy Prime Minister Alexander Novak called "a new year's gift" to the oil market with its surprise announcement of an extra 1 million b/d production cut, blowing away expectations that the OPEC+ alliance would merely roll over its collective output ceiling.
"We do 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," he said in a post-meeting press conference.
Front-month Brent and WTI last settled higher on Feb. 25, 2020, and Feb. 24, 2020, respectively.
The kingdom will hold its February and March crude production at 8.125 million b/d -- well below its quota of 9.119 million b/d -- to help bring down oil inventories that had bloated from the pandemic, Saudi Arabian Energy Minister Prince Abdulaziz bin Salman said Jan. 5, after two days of OPEC+ talks.
The commitment will drop the 23-member OPEC+ alliance's collective quotas in February to 35.734 million b/d -- an 8.129 million b/d cut from November 2018 levels.
Russia and Kazakhstan will be allowed respective production increases of 65,000 b/d and 10,000 b/d in February and March under a deal with OPEC and allies while all other members will roll over their January quotas, four sources told S&P Global Platts.
NYMEX February RBOB settled 7.92 cents higher at $1.4521/gal and February ULSD climbed 5.69 cents at $1.5189/gal.
Second-month Brent futures settled at a 6 cent/b premium to the front-month contract, pushing the front-end of the forward curve into backwardation for the first time since Dec. 12, 2020. WTI structure also turned more bullish, but an 8 cent/b contango persisted between the front and second-month contracts.
"It is all about OPEC+ today, as oil prices ignore some downbeat COVID headlines that include Germany extending lockdown to the end of the month and the FDA advising against some measures of altering the timing and changing the dosage of vaccine shots," OANDA senior market analyst Edward Moya said in a note.
Germany announced Jan. 5 that it would extend lockdown measures, originally slated to expire on Jan. 10, through the end of the month. The news comes on the heels of the start of a nationwide lockdown in the UK that began at midnight Jan. 5.
The front-month Platts Amsterdam-Rotterdam-Antwerp Eurobob crack versus Brent edged down to $2.55/b from $2.85/b Jan. 4. But US cracks were stronger. The front-month ICE New York Harbor RBOB crack against Brent climbed to $7.41 in afternoon trading, up from $6.90/b the session prior.
