Oil breached US$50 a barrel as Saudi Arabia pledged a voluntary oil-production cut from next month, while most of the OPEC+ alliance agreed to hold output steady.

Futures in New York rose as much as 5.1 per cent, topping US$50 a barrel for the first time since February before easing off the high. OPEC+ reached an agreement after two days of talks to curb supply over the next two months, with Saudi Arabia carrying much of the extra burden of the cuts. Other producers will hold supply steady or make a small increase, delegates said. Russia and Kazakhstan will be allowed to boost output by a combined 75,000 barrels a day in both February and March.

Saudi Arabia’s unilateral cut is “a groundbreaking statement that shows the oil giant is not only ready to bite the bullet and keep taps tight, but it also recognizes the short-term demand risk and is ready to protect its export prices by tightening supply,” said Bjornar Tonhaugen, head of oil markets at Rystad Energy.

OPEC+ faces a complex demand outlook as the group decides how to move forward with its output plan month by month. There are signs that parts of the world’s economies are staging a comeback, with a measure of U.S. manufacturing expanding last month at the fastest pace since 2018. But other areas of the demand recovery that had seemed constant are showing some signs of wavering.

Several Asian refiners won’t be getting into long-term supply contracts for fuel sales this year, a sign the region’s energy consumption recovery is far from certain, although a cold snap in the Northern Hemisphere is aiding demand for heating fuels.

“Raising production while many key regions enter renewed lockdowns was a tough sell for Russia but at the same time holding back production at these price levels will be just as difficult,” said Ryan Fitzmaurice, commodities strategist at Rabobank. “The higher prices go, the harder it will be for financially weaker OPEC+ nations to comply.”

Prices

• West Texas Intermediate for February delivery rose US$2.29 to US$49.91 a barrel at 12:30 p.m. in New York
• Brent for March settlement gained US$2.19 to US$53.28 a barrel

The OPEC+ agreement will see the alliance cut 7.125 million barrels a day in February and 7.05 million barrels a day in March, according to a draft communique. Saudi Arabia is offering to make additional voluntary oil-output cuts in excess of 400,000 barrels a day for February and March, according to a delegate.

In the U.S., expectations are for crude inventories to fall this week following three straight weeks of declines, according to a Bloomberg survey. The industry-funded American Petroleum Institute reports its figures later Tuesday ahead of U.S. government data on Wednesday.

“We’re basically at pre-COVID price levels now,” said Bob Yawger, head of the futures division at Mizuho Securities. “You’re probably going to get some new speculators to jump in, who were just waiting for that big whole number to be breached.”

Other oil-market news

• OPEC’s Persian Gulf exporters shipped more oil last month than at any time since May, when their current round of output restraint came into effect.
• Iraq exported the first cargo of its new Basrah Medium crude as OPEC’s second-largest producer introduces the blend alongside its established Light and Heavy grades.
• Trafigura Group’s purchase of a stake in Rosneft PJSC’s flagship Arctic oil project was funded by a US$7 billion loan organized by a Russian bank, according to documents that shed new light on the trading house’s biggest-ever deal.