Crude oil prices are at a 1-year high as Saudi Arabia pledges output cut

Crude oil prices are trading at a one-year high as a reaction to Saudi Arabia’s announcement that it will cut its output by 1 million bpd in February and March. At the same time, the API has indicated a drop in US oil inventories. As of 07.05 GMT, WTI crude oil futures were trading slightly above the psychological level of $50 at $50.15. Brent futures also rose by 0.90% to trade at $54.00. Later in the day, investors will be keen to see how the market reacts to EIA’s stockpiles figures.

US records a drop in crude oil inventories

Crude oil prices are reacting to the bullish stockpile figures released by the American Petroleum Institute on Tuesday. The agency indicated that last week’s oil inventories dropped by 1.663 million barrels. The data beat estimates of -1.5 million barrels.

The bullish figures are the second in a row. In the previous week, the amount of crude oil in storage declined by 4.785 million barrels against the forecasted -2.1 million barrels. Prior to that, the agency had reported bearish numbers for six consecutive weeks.    

Later today, crude oil prices will be reacting to data on crude oil inventories from the Energy Information Administration. Experts expect the stockpiles to fall by 1.271 million barrels. In the previous week, the agency presented a reading of -6.065 million barrels. For investors looking to trade oil, a further decline in stockpiles will be a sign of increasing demand for the commodity.  

Saudi Arabia pledges output cuts; Russia to boost production in February

Since the beginning of the week, crude oil prices have been reacting to the OPEC+ meeting. On Monday, the coalition failed to reach an agreement. There seemed to be two groups within the alliance. On the one hand, countries like Russia were rooting for increased production before US shale producers do. However, the likes of Saudi Arabia are willing to reduce sales volumes in order to maintain crude oil prices at a high.   

On Tuesday, Saudi Arabia took the market by surprise by pledging an additional output cut of 1 million bpd in February and March. Speaking after the announcement, the kingdom’s Minister of Energy, Prince Abdulaziz bin Salman told Bloomberg, “We have the responsibility of looking after the market, and we will take all necessary actions. I have said this repeatedly and even advised that no one should bet against our resolve.”

The alliance has allowed Russia and Kazakhstan to increase their output by a combined 75,000 bpd in each of the next two months. Russia was pushing for a production increase of 500,000 bpd in February. Most of the other member countries will maintain their current output.