Oil tops US$50 with Saudis pledging a surprise unilateral cut

Oil surged to its highest since February after Saudi Arabia pledged additional, voluntary oil output cuts of one million barrels per day ( bpd) in February and March as part of a deal under which most OPEC+ producers will hold production steady in the face of new coronavirus lockdowns.

Saudi Arabia is going beyond its promised cuts as part of the OPEC+ group of producers to support both its own economy and the oil market, Energy Minister Prince Abdulaziz bin Salman said on Tuesday.

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. “If there is one way to describe what its voluntary cut means for the market, `happy hour' is a pretty fitting term.”

Benchmark Brent oil prices rose on the news, trading up almost five per cent above US$53 per barrel at 2023 GMT. Futures in New York rose 4.9 per cent Tuesday after briefly topping US$50 a barrel for the first time since the lockdowns sent fuel demand plunging.

There had been concerns that the oil cartel would start to normalize production even as countries again go into COVID-19 lockdowns, said Greg Taylor, chief investment officer of Purpose Investments.

“But it feels now that OPEC'S playing ball and trying to get the price higher and that's really showing up in the price of the oil companies today,” he said in an interview.

Canada's main stock index rose to its highest level since February as the energy sector was powered by surging oil prices. The loonie traded for US78.70 cents, its highest level in almost three years and compared with US78.43 cents on Monday.