Oil prices surge as Saudi Arabia pledges to cut output

NEW YORK – Oil prices shot higher on Tuesday following Saudi Arabia’s surprise announcement that it will trim production, while global equities had a mixed session as governments contend with coronavirus outbreaks and difficulties with vaccinations.

The price of the main United States oil contract, WTI, jumped more than 5% higher at one point to hit US$50 (RM200) a barrel for the first time since February last year.

Members of the oil cartel OPEC and their partners agreed on Tuesday to raise output slightly in February and March, but only in Russia and Kazakhstan, while Saudi Arabia Energy Minister Prince Abdulaziz Salman announced that the country will cut its own production by one million barrels per-day in both months.

“Saudi Arabia put the cherry on the cake, and if there is one way to describe what its voluntary cut means for the market, ‘happy hour’ is a pretty fitting term,” Rystad Energy’s Bjornar Tonhaugen said of the surprise announcement.

“They say there is no such thing as a free meal, but it’s difficult to see how a beast of a one million bpd cut is justified behind closed Saudi strategist doors.”

The news lifted petroleum-linked stocks on Wall Street, including Hallburton, Occidental Petroleum and Apache, all of which gained at least 8%.

Covid-19 headwinds

Major US indices also advanced, following better-than-expected US manufacturing data and car sales, as markets monitored Georgia elections that will determine control of the US Senate.

The gains on Wall Street came after stocks pulled back on Monday on worries that a Democratic sweep of the two Georgia Senate runoffs will clear the way for tax increases and other major legislative changes.

But news of fresh lockdowns and slow vaccination campaigns kept European stocks mostly on the back foot.

London stocks managed to end the day with a gain of 0.6%, helped by the strong performance of oil stocks on the FTSE 100.

But the United Kingdom on Tuesday began implementing new national restrictions set to last weeks, as the country is beset by a new variant of the coronavirus that apparently spreads faster.

For the markets, the news was counterbalanced in part by the announcement of an extra £4.6-billion (RM25 billion) package for virus-battered businesses.

Frankfurt fell 0.6% as Germany was set to extend a shutdown in Europe’s top economy, and Paris gave up 0.4% as the French government scrambled to speed up a slow rollout of Covid-19 vaccines.

“The mood has soured somewhat as a result of the national lockdowns, which are once again coming into force or being extended,” Oanda analyst Craig Erlam said.

“This was maybe inevitable anyway as a result of the (Christmas) festivities taking place in the midst of an already severe wave of Covid-19, but the new variant has thrown another spanner in the works.”

Dealers said Asian equities mostly rebounded on Tuesday on hopes that ongoing vaccine roll-outs will help beat the coronavirus crisis. – AFP, January 6, 2021