Oil prices reached their highest level in nearly a year on Friday, backed by Saudi Arabia’s promise to cut production and strong gains in major equity markets.
Brent crude settled at $55.99 a barrel, climbing $1.61, or 3%, on the day and 8.1% on the week. West Texas Intermediate crude futures (WTI) closed at $52.24 a barrel, gaining $1.41, or 2.8%, also its highest since late February. WTI posted a weekly gain of 7.7%.
The Saudi Kingdom, the de facto leader of OPEC, was in disagreement with some other producers who wanted to increase production in order to distance the US shale oil companies from gaining more market share. Eventually, an agreement was reached that allowed Russia and others to increase production while the Saudis cut their own production.
Saudi Arabia this week pledged an extra, voluntary oil production cut of 1 million barrels a day in February and March as part of an agreement that most OPEC + producers will keep production stable during the new lockdowns. The Saudis have taken a step to strengthen the market and took the lead to stabilize prices, taking on a task to raise prices again.
The number of US oil rigs increased for the seventh consecutive week, rising eight this week to 275, reaching its highest level since May.
Analysts say oil prices may see another correction in the coming months if fuel demand keeps decreasing due to the pandemic. Strict restrictions on travel and other activities around the world to limit the increase in COVID-19 cases weaken the possibility of recovery of energy demand in the first half of 2021.
The pandemic declared the highest death rate in the US this week, with more than 4,000 deaths in a single day. With China reporting the largest increase in daily cases in more than five months, Japan may extend the state of emergency beyond the Tokyo area.
As investors focused on more incentives to correct the economic damage of the pandemic, the global equities rally brought Japan’s Nikkei and US stock indices to new records.
The U.S. Congress could likely approve more incentives soon, after Biden swore. The energy complex is particularly focused on democratic victories in the Georgian elections and likelihood of larger incentive measures are increased.