Brent Crude Oil Breaks Through $55 Per Barrel

  • “Expectations of a $2,000 stimulus check for everybody is boosting the outlook and assets more generally.”
  • Saudi Arabia has added a degree of vigor to the rally as news of the pledge to cut production by 1 million barrels a day in February and March was released.
  • Despite the current situation of a global pandemic, there are still some bright spots for consumption.

Oil prices have begun to rise this week. Driven by the rise in the stock market, the price of Brent crude oil rose to $55.04 per barrel, the highest level since February last year. Saudi Arabia’s plan to unilaterally cut production has made investors optimistic, while the general rise in the market has further promoted optimism.

The Organization of the Petroleum Exporting Countries (OPEC) is an intergovernmental organization of 14 nations, founded on 14 September 1960 in Baghdad by the first five members (Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela), and headquartered since 1965 in Vienna, Austria.

“Expectations of a $2,000 stimulus check for everybody is boosting the outlook and assets more generally,” said Michael Lynch, president of Strategic Energy & Economic Research.

“It encourages people to believe the economic recovery will be stronger, that you’ll see more spending, more activity and more oil demand as a result.”

On Tuesday, the Organization of the Petroleum Exporting Countries (OPEC) and its allies reached an agreement that most oil-producing countries will basically maintain stable production next month, while Saudi Arabia will cut production by 1 million barrels per day alone.

“It was a big week for Saudi Arabia,” said John Kilduff, a partner at Again Capital LLC. “It just shows that the Saudis are pretty serious here about trying to constrain output, lower global inventories, and get prices even higher.”

The oil market got off to a good start at the beginning of the year, and crude oil is expected to become the main asset class that is favored by vaccine news. The rebalancing of the annual commodity price index will also benefit oil prices. Starting from Friday, the process may have $9 billion flowings into the oil market.

“The past 10 weeks of trading have seen only one weekly decline, which was comparatively small,” said Carsten Fritsch, an analyst at Commerzbank AG. “This is testimony to the strength of the oil market in the last 2 1/2 months.”

Saudi Oil

Oil reserves in Saudi Arabia

Saudi Arabia has added a degree of vigor to the rally as news of the pledge to cut production by 1 million barrels a day in February and March was released.

The US Senate brought broader markets higher in anticipation of the additional stimulus.

Citigroup Inc. lifted its estimates for the S&P 500’s price gains. However, Saudi Arabia’s sudden cut is unexpected to some Asian countries. This shows that China’s policy is to have an increasing presence in the North Sea oil fields.

“This ‘surprise’ cut by Saudi Arabia is pure MBS [as Prince Mohammed is known colloquially],” said Greg Priddy, an independent consultant in the oil industry.

“It’s a bold move that will let him claim a short-term win on price, but it makes little strategic sense in terms of their long-term position with Russia.”

“The Saudi move, if realized, is not only offering a soft pillow to the oil market but also a full set of blankets, bed covers, and most likely the bed itself,” Bjornar Tonhaugen at Rystad Energy said. “But it is quite difficult to swallow the added curtailment size. It’s just too good to be true.”

There is an evident impact from Saudi Arabia’s decision to sell crude oil in such a dramatic manner. WTI is trading near the top of the month, while the spread between the nearest two December contracts is at a record-breaking high level.

Despite the current situation of a global pandemic, there are still some bright spots for consumption. Due to very cold weather in the Beijing winter, energy costs for factories and homes are surging all over the world.

George Mtimba

George clarifies how the news is changing the world, how world news trends affect you. Also, George is a professional journalist, a freelance news reporter and writer who is passionate with current world news.

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