By Adedapo Adesanya
Oil prices extended gains on Thursday, rising to their highest since last February on the back Saudi Arabia big voluntary production cut and crude inventories decline in the United States.
During the trading session, the Brent crude gained 22 cents or 0.41 per cent to sell at $54.52 per barrel, while the US West Texas Intermediate (WTI) rose by 20 cents or 0.4 per cent to trade at $50.82 per barrel.
Both contracts had jumped by almost more than 5 per cent this week on the string of bullish news.
US crude stocks fell sharply while fuel inventories rose, the Energy Information Administration (EIA) said on Wednesday, and 2020 came to a close with a sharp decline in overall demand due to the coronavirus pandemic.
Crude inventories fell by 8 million barrels in the week to January 1 to 485.5 million barrels, exceeding analysts’ expectations of 2.1 million barrels drop.
Market analysts noted that the drop in crude stocks is typical for the end of the year when energy companies take barrels out of storage to avoid tax bills.
The market still holds firm to the promise made by the world’s biggest oil exporter, Saudi Arabia, to make additional voluntary oil output cut of one million barrels per day (bpd) in February and March, after a meeting of the Organization of the Petroleum Exporting Countries and other producers (OPEC+).
OPEC+ agreed that most producers would hold output steady in February and March while allowing Russia and Kazakhstan to raise output by a modest 75,000 barrels per day combined in February and March.
The kingdom’s production cut has been touted to throw a lifeline to the US shale producers, ensuring drilling rates continue to recover and should help to stabilise their production this year.
In the short term, the reduction in crude supply will protect prices by pushing disagreements about market share into the future.
As global oil consumption recovers, it is probable that unity within OPEC+ will weaken further as other members are likely to start raising their output.
The market still continues to hold under spreasinf coronavirus infections leading producers to worry about a further hit to demand.
