Oil jumps 2%, hits highest level in a year as producers limit supply

NEW YORK (Reuters) – Oil prices rose 2% on Tuesday to their highest level in 12 months after major producers showed they were cutting output roughly in line with commitments.

FILE PHOTO: Crude oil storage tanks are seen in an aerial photograph of the Cushing oil hub in Cushing, Oklahoma, U.S., April 21, 2020. REUTERS/Drone Base

Both global and US crude benchmarks rallied as optimism about more economic stimulus in the US added to the market’s rise in OPEC production levels, which rose less than expected in January.

Brent crude settled down $1.11, or 2%, at $57.46 a barrel, after its third straight day of gains. During the session, it touched $58.05, the highest levels since January last year.

U.S. Oil gained $1.21, or 2.3%, to close at $54.76, after hitting a session high of $55.26, the highest in a year.

Organization of the Petroleum Exporting Countries crude output rose in January for a seventh month, but the increase was smaller than expected, according to a Reuters survey.

Voluntary cuts of 1 million barrels a day by OPEC’s de facto leader Saudi Arabia are expected to be implemented from early February through March.

Russian production increased in January but was in line with the OPEC+ supply pact, while in Kazakhstan oil volumes fell during the month.

The recovery accelerated as the US Congress seemed poised to pass an economic stimulus package and cold weather in the US boosted demand for heating oil.

“You have the US economic stimulus package that no one thought we would get,” said Bob Yawger, director of energy futures at Mizuho in New York.

The Democratic-led U.S. House of Representatives geared up to take the first step on President Joe Biden’s $1.9 trillion COVID-19 relief package on Tuesday, with a key vote expected to expedite the measure in Congress.

A cold snap and heavy snowfall in the northeastern US pushed the heating oil margin to an 8-month high at $15.84, providing further support for crude.

According to a Reuters poll, U.S. inventories of distillate fuel, including heating oil, were expected to have fallen by 400,000 barrels last week. Crude inventories were expected to rise by 400,000 barrels. [EIA/S]

Inventory estimates from the American Petroleum Institute, a trade group, are due at 4:30 p.m. (2130 GMT), with government figures to follow on Wednesday. [API/S]

However, energy giant BP reported a rocky start to 2021 amid falling product demand, noting January retail volumes were down around 20% year-on-year, compared to a down 11% in the fourth quarter.

Oil demand is still expected to recover in 2021, BP said, with global inventories expected to return to their five-year average by mid-year.

Additional reporting by Noah Browning and Aaron Sheldrick Editing by Marguerita Choy and David Gregorio

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