Oil prices rose 2% on Tuesday, reaching their highest in 12 months after major producers showed they were reining in output roughly in line with commitments.
The global and U.S. crude benchmarks rallied as optimism about more U.S. economic stimulus added to bullishness from OPEC production levels, which rose less than expected in January.
Brent crude settled up $1.11, or 2%, at $57.46 a barrel, its third straight day of gains. During the session, it touched $58.05, the highest since January last year.
U.S. oil gained $1.21, or 2.3%, to close at $54.76, after hitting a session high of $55.26, the highest in a year.
Both contracts traded higher after the settlement, after the American Petroleum Institute, a trade group, said oil and fuel inventories were lower on the week.
Crude output from the Organization of the Petroleum Exporting Countries rose in January for a seventh month but the increase was smaller than expected, a Reuters survey found.
Voluntary cuts of 1 million barrels per day by OPEC’s de facto leader, Saudi Arabia, are to be implemented from the beginning of February through March.
Russian output increased in January, in line with the OPEC+ pact, while in Kazakhstan, oil volumes fell for the month.
The rally picked up steam as the U.S. Congress looked ready to adopt an economic stimulus package, and as cold U.S. weather boosted heating oil demand.
“You got the U.S. economic stimulus package that no one thought we would get,” said Bob Yawger, director of energy futures at Mizuho in New York.
The Democratic-led U.S. House of Representatives prepared to take the first step forward on President Joe Biden’s $1.9 trillion COVID-19 relief package.
A cold snap and heavy snow in the U.S. Northeast drove the margin for heating oil to an 8-month high of $15.84, lending further support to crude.
U.S. distillate fuel stockpiles, including heating oil, fell in the latest week, according to the API. The group said gasoline and crude stockpiles also fell. Government figures are due to be released at 10:30 a.m. EST on Wednesday. [EIA/S]
However, energy giant BP flagged a difficult start to 2021 amid declining product demand, noting that January retail volumes were down about 20% year-on-year, compared with a decline of 11% in the fourth quarter.
Oil demand is nevertheless expected to recover in 2021, BP said, with global inventories seen returning to their five-year average by the middle of the year.