Oil extends gains after surprise Saudi output cut

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A TORC Oil & Gas pump jack is seen near Granum, Alberta, Canada

Oil prices extended gains on Wednesday, rising to their highest since late February, after Saudi Arabia announced a big voluntary production cut, and as an industry report showed U.S. inventories fell last week.

Brent crude rose 85 cents, or 1.6%, to $54.45 a barrel at 1050 GMT, its highest level since Feb. 26, 2020, after jumping about 5% on Tuesday.

U.S. West Texas Intermediate (WTI) futures were up 52 cents, or 1%, to $50.45 a barrel, also their highest since Feb. 26. The contract on Tuesday closed up 4.6%.

Saudi Arabia, the world’s biggest oil exporter, on Tuesday announced it would make additional, voluntary oil output cuts of 1 million barrels per day (bpd) in February and March, after a meeting of OPEC+, which groups Organization of the Petroleum Exporting Countries producers and others, including Russia. [nL1N2JG0GX]

With coronavirus infections spreading rapidly producers are wary of a further hit to demand.

OPEC+ agreed most producers would hold output steady in February and March while allowing Russia and Kazakhstan to raise output by a modest 75,000 bpd in February and a further 75,000 bpd in March.

“Despite this bullish supply agreement, we believe Saudi’s decision likely reflects signs of weakening demand as lockdowns return,” Goldman Sachs analysts wrote in a note, though they maintained an end-2021 forecast for Brent of $65 a barrel.

U.S. crude oil inventories fell by 1.7 million barrels in the week to Jan. 1 to 491.3 million barrels, data from industry group the American Petroleum Institute showed late on Tuesday.

Official U.S. Energy Information Administration inventory data for the week to Jan.1 is due on Wednesday.

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