Oil jumps, breaks above $50 for the first time since February as Saudi Arabia announces voluntary cuts

U.S. West Texas Intermediate crude futures, the U.S. oil benchmark, broke above $50 on Tuesday for the first time since February. The move higher marks a steady comeback for oil prices after the coronavirus pandemic and subsequent demand loss sent futures prices tumbling, and briefly into negative territory last April.

WTI last traded $2.23, or 4.68%, higher at $49.85 per barrel, after earlier trading as high as $50.05. International benchmark Brent crude gained $2.07, or 4.05%, to trade at $53.16 per barrel.

The move higher came as oil-producing nations met to discuss February output, with Reuters reporting that OPEC+ is set to hold output steady in February, citing multiple people with knowledge of the matter. It was the group’s second day of discussion, after talks ended in a stalemate on Monday.

Tensions in the Middle East also drove prices higher.

“Away from the OPEC+ poker table, the oil market found a helping hand in the Middle East, where tensions are flaring again,” said Bjornar Tonhaugen, head of oil markets at Rystad Energy. “Iran seizing a tanker creates, again, instability in the region and questions are raised again over the reliability of the oil transport Gulf sea roads. If the situation doesn’t deescalate quickly, oil prices will benefit from the unpredictability.”

Still, oil prices remain below pre-pandemic levels. WTI closed out 2020 around $48.50 per barrel, registering a 20.54% loss for the year. At the beginning of 2020, WTI traded above $63 per barrel.

OPEC and its allies have been one of the driving forces behind oil prices.

At its December meeting, the group agreed to increase production by 500,000 barrels per day beginning in January after days of tense discussions. This brought total production cuts at the start of Jan. to 7.2 million barrels per day.

“Should OPEC+ opt to keep production levels constant (or cuts at 7.2 million barrels per day) in February, the likelihood that the next [OPEC+] meeting would authorize adding additional barrels in March would most likely increase,” noted Eurasia Group’s Ayham Kamel. “However, it is key to keep in mind that the context for these OPEC+ decisions will remain tied to developments in the global economy and Covid-19 pandemic dynamics,” he added.

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