Saudi Arabia agreed to cut more oil production than other OPEC members, lighting a fire under oil prices.
Earlier Tuesday, reports from a meeting of the Organization of Petroleum Exporting Countries and other producers such as Russia said the group had agreed to hold off on production increases until March as a spike in coronavirus cases threatened demand.
Then, Saudi Arabia announced it would cut 1 million barrels a day in February and March while other nations hold steady or make minor increases.
Oil prices surged above $50 for the first time since early 2020. The price of West Texas Intermediate, the U.S. benchmark, rose 5% as did the price of Brent crude, the international standard.
The group, known as OPEC-plus, earlier agreed to keep production at current levels for another month, The Wall Street Journal reported, after deadlocking on the issue on Monday because Russia and others wanted to bump up production.
Now Russia and Kazakhstan will raise their production 75,000 barrels a day combined, while others will stay the same, Bloomberg reported.
“Energy investors we have spoken with continue to sound more bullish on 2021 given muted incremental supply and the potential for rising demand as the economy rebounds post-Covid,” analysts from Truist said in a note Tuesday.
Oil prices dropped more than 20% last year after demand dried up because businesses shut down. Producers tried to cut production to mitigate the crisis, but they couldn’t keep pace with the economic fallout.
At the beginning of 2020, oil was above $60 a barrel. Energy has been the S&P’s worst-performing sector for a decade and was down 37.5% last year, but it leads the other sectors in the first two trading days of this year.
OPEC agreed in December to increase production by 500,000 barrels a day. That was a net production cut since the start of the pandemic of about 7.2 million barrels a day.
Saudi Arabia and other producers wanted to extend the current production levels through February, while Russia resisted, according to The Wall Street Journal. The producers are meeting virtually this week.
Russia had argued that U.S. producers would fill the gap in demand growth and grab market share, the Journal said.
On Monday, the Saudi energy minister, Prince Abdulaziz bin Salman, said that vaccines were a “very welcome sign” for the oil market, but that producers needed to remain cautious.
A new, more contagious strain of the coronavirus has forced fresh lockdowns in the U.K., and surging cases in the United States prevent business from returning to normal any time soon.
“As we see light at the end of the tunnel, we must — at all costs — avoid the temptation to slacken off our resolve,” Prince Abdulaziz said in a statement Monday. “Do not put at risk all that we have achieved for the sake of an instant but illusory benefit.”
Write to Liz Moyer at Liz.Moyer@barrons.com