Oil hit an 11-month high towards $57 a barrel on Tuesday as tighter supply and expectations of a drop in US inventories offset concerns over climbing coronavirus cases globally.
Saudi Arabia plans to cut output by an extra 1 million barrels per day (bpd) in February and March to stop inventories from building up. The latest US supply reports are expected to show crude stocks fell for a fifth straight week.
Brent crude was $0.75, or 1.4%, higher at $56.41 a barrel by 1022 GMT and earlier hit $56.75, the highest since last February. US West Texas Intermediate (WTI) gained $0.86, or 1.7%, to $53.11.
“Saudi Arabia in particular is ensuring through its additional voluntary production cuts that the market is undersupplied if anything,” said Eugen Weinberg of Commerzbank.
The Saudi cut is part of Organisation of the Petroleum Exporting Countries (OPEC)-led deal in which most producers will hold output steady in February. Record cuts by OPEC and its allies in 2020 helped oil recover from historic lows in April. Some analysts see further gains as likely.
“We advise investors with a high risk tolerance to be long Brent or to sell its downside price risks,” said Giovanni Staunovo of UBS in a report on Tuesday.
Oil also gained on expectation of a drop in US crude stockpiles. Analysts expect crude inventories to fall by 2.7 million barrels for a fifth straight week of declines.
The first of this week’s two supply reports, from the American Petroleum Institute, is due at 2130 GMT.
The prospect of increased economic stimulus in the United States lent further support. President-elect Joe Biden, who takes office on January 20, has promised “trillions” in extra pandemic-relief spending.
Concerns about demand due to rising coronavirus cases worldwide limited gains. Chinese authorities introduced new curbs in areas surrounding Beijing on Tuesday and Japan is to widen a state of emergency beyond Tokyo.