Crude oil futures tick higher as Saudi Arabia’s 1 million b/d cuts begin

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(S&P Global Platts) Crude oil futures were buoyed as Saudi Arabia’s voluntary 1 million b/d production cuts, announced in January, took effect, even as concerns of flailing energy demand amid the coronavirus pandemic persisted.

At 11:52 am Singapore time (0352 GMT), the ICE Brent April contract rose 33 cents/b (0.6%) from the Jan. 29 settle to $55.37/b, while the March NYMEX light sweet crude contract was up 22 cents/b (0.42%) to $52.42/b.

On Jan. 5, Saudi Arabia voluntarily committed to an extra 1 million b/d production cut through February and March to help bridge the supply and demand imbalance in the market. These cuts came into effect Feb. 1.

The start of the Saudi production cuts comes amid strong compliance from OPEC+ as a whole, with analysts from St. George Bank noting on Feb. 1 that the coalition adhered to 99% of their agreed oil supply curbs over January.

“Curbs on output by OPEC+, combined with constraint from the US shale industry should see inventories falling in H1 2021,” according to ANZ analysts in a note on Feb. 1.

Alongside the supply reduction in the Middle East, tightening supply from Russia is also providing support to the market.

“Russia [is] planning to cut its Urals crude exports by almost 20% to a three-month low in February, as oil gets diverted for domestic consumption due to frigid weather,” Stephen Innes, chief global markets strategist at AXI said in a Feb. 1 note.

The market is looking forward to the Feb. 3 OPEC Joint Ministerial Monitoring Committee for fresh cues on supply outlook. Ahead of the meeting, market analysts, however, expect few changes to production quotas as the alliance has already committed to production cuts for the first quarter of 2021 in its previous meeting.

Despite efforts to reduce oversupply in the market, consistent weakness in demand continues to limit the upside in the market.

“Stricter lockdowns and new restrictions in several countries threaten to weigh on demand for transportation fuels. This has been exacerbated by issues around the rollout of COVID-19 vaccines,” ANZ analysts said.

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