Energy

Oil hits highest level since February ahead of inventory data

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A view of the Marathon Petroleum Corp's Los Angeles Refinery in Carson, California, April 25, 2020.
Robyn Beck | AFP | Getty Images

Oil hit an 11-month high towards $57 a barrel on Tuesday as tighter supply and expectations of a drop in U.S. inventories offset concerns over climbing coronavirus cases globally.

Saudi Arabia plans to cut output by an extra 1 million barrels per day (bpd) in February and March to stop inventories from building up. The latest U.S. supply reports are expected to show crude stocks fell for a fifth straight week.

Brent crude was 80 cents, or 1.4%, higher at $56.44 a barrel and earlier hit $56.75, the highest since last February. U.S. West Texas Intermediate (WTI) settled 1.8%, or 96 cents, higher at $53.21 per barrel.

"Saudi Arabia in particular is ensuring through its additional voluntary production cuts that the market is undersupplied if anything," said Eugen Weinberg of Commerzbank.

The Saudi cut is part of an OPEC-led deal in which most producers will hold output steady in February. Record cuts by OPEC and its allies in 2020 helped oil recover from historic lows in April. Some analysts see further gains as likely.

"We advise investors with a high risk tolerance to be long Brent or to sell its downside price risks," said Giovanni Staunovo of UBS in a report on Tuesday.

Oil also gained on the expectation of a drop in U.S. crude stockpiles. Analysts expect crude inventories to fall by 2.7 million barrels for a fifth straight week of declines.

The first of this week's two supply reports, from the American Petroleum Institute, is due at 2130 GMT.

The prospect of increased economic stimulus in the United States lent further support. President-elect Joe Biden, who takes office on Jan. 20, has promised "trillions" in extra pandemic-relief spending.

Concerns about demand due to rising coronavirus cases worldwide limited gains.

Chinese authorities introduced new curbs in areas surrounding Beijing on Tuesday and Japan is to widen a state of emergency beyond Tokyo.