Oil prices extended gains on Wednesday, rising to their highest since late February, after Saudi Arabia announced a big voluntary production cut, and as U.S. crude inventories declined in the latest week.
Both contracts were up about 5% on Tuesday.
U.S. crude stocks fell sharply while fuel inventories rose, the Energy Information Administration said on Wednesday, and 2020 came to a close with a sharp decline in overall demand due to the coronavirus pandemic.
Crude inventories fell by 8 million barrels in the week to Jan. 1 to 485.5 million barrels, exceeding analysts' expectations in a Reuters poll for a 2.1 million-barrel drop. The drop in crude stocks is typical for the end of the year, when energy companies take barrels out of storage to avoid hefty tax bills.
"We had a very substantial crude oil inventory draw helped by a second week of very robust crude oil exports as well as an increase in refinery utilization now exceeding 80%," said Andrew Lipow, president of Lipow Oil Associates in Houston.
High refinery consumption may be short-lived, said Bob Yawger director of energy futures at Mizuho in New York.
"We've burned through a lot of crude oil to make a lot of product, and there's no demand for the product," he said. "You can't run at that high a rate forever, with the numbers what they are."
Saudi Arabia, the world's biggest oil exporter, said on Tuesday it would make additional, voluntary oil output cuts of 1 million barrels per day (bpd) in February and March, after a meeting of OPEC+, which groups the Organization of the Petroleum Exporting Countries and other producers, including Russia.
With coronavirus infections spreading rapidly, producers are wary of a further hit to demand.
OPEC+ agreed most producers would hold output steady in February and March while allowing Russia and Kazakhstan to raise output by a modest 75,000 bpd in February and a further 75,000 bpd in March.
"Despite this bullish supply agreement, we believe Saudi's decision likely reflects signs of weakening demand as lockdowns return," Goldman Sachs analysts wrote in a note, though they maintained an end-2021 forecast for Brent of $65 a barrel.
OPEC oil output rose for a sixth month in December to 25.59 million bpd, a Reuters survey found, buoyed by further recovery in Libyan production and smaller rises elsewhere.