By Adedapo Adesanya
Oil prices continued their ascent on Wednesday as the Energy Information Administration (EIA) reported a crude oil inventory draw of 8 million barrels for the last week of 2020.
Also, the invasion of the Capitol by supporters of President Donald Trump of the United States of America (USA) could not bring down the value of the commodity.
As at the time of filing this report, the price of the Brent crude was up by 57 cents or 1.06 per cent to $54.17 per barrel, while the US futures, West Texas Intermediate (WTI) crude, appreciated by 55 cents or 1.1 per cent to trade at $50.48 per barrel.
Yesterday, the report of a decline in the inventory in the US came a day after the American Petroleum Institute (API) estimated a relatively modest draw in oil inventories, at 1.66 million barrels.
This helped the market, which has continued to witness a bullish performance after it welcomed decisions by the Organisation of the Petroleum Exporting Countries and its allies (OPEC+) to extend current cuts level for another two months.
When this decision was revealed, Saudi Arabia also announced that it would implement a voluntary additional oil production cuts of 1 million barrels per day on top of its OPEC+ mandated cuts.
Although the extended cartel agreed to leave current production levels relatively flat overall, Russia and Kazakhstan will ramp up their output in February and March.
Even with the quick reaction of prices to the Saudi news, the market is still looking at whether the additional cut will have a lasting effect on supply in the context of still rising numbers of COVID-19 infections, which will continue undermining demand.
In addition to pandemic-induced uncertainty, with many countries seeing increased infections and some seeing fresh lockdowns over the new and highly transmissible coronavirus variant, analysts note that the willingness of Saudi Arabia and Russia to remain loyal to OPEC+ supply cut agreements will be crucial for crude prices this year.
A top investment bank, Goldman Sachs, sees demand rebounding by March, with the arrival of warmer weather and increased vaccinations.
The firm noted that its short term outlook is weaker but gave a good review for the whole year, noting that Brent could end the year at $65 per barrel.
“Despite this bullish supply agreement (from OPEC), we believe Saudi’s decision likely reflects signs of weakening demand as lockdowns return, with our updated 1Q21 balance actually weaker than previously,” Goldman’s energy team wrote in an analysis published Wednesday.
“Saudi’s action and the prospect for a tight market in 2Q21, as the rebound in demand stresses the ability to restart production, will likely support prices in coming weeks, leading us to reiterate our bullish oil view.
“Our own year-end Brent forecast of $65/bbl is still well above market forwards and consensus expectations,” the bank added.
