DTN Oil

WASHINGTON (DTN) -- Crude futures on the New York Mercantile Exchange and Intercontinental Exchange soared to 10-month highs Tuesday, with front-month West Texas Intermediate briefly touching the $50 barrel (bbl) mark on breaking news that OPEC+ reached consensus on production quotas through the first quarter, keeping most targets unchanged at January levels, while Saudi Arabia pledged an additional 1 million barrels per day (bpd) output cut to accommodate a softer demand recovery during the winter months.

On the session, NYMEX February West Texas Intermediate futures spiked $2.31 or 5% to settle just below $50 bbl at $49.93 bbl, with international Brent crude benchmark for March delivery advancing a steeper $2.51 for a $53.60 bbl settlement. NYMEX February ULSD contract gained 5.69 cents or 4% to finish at $1.5189 gallon and the front-month RBOB contract rallied 7.92 cents to a 10-month high $1.4521 gallon.

Organization of the Petroleum Exporting Countries and Russia-led partners concluded their ministerial meeting Tuesday with a complex deal that seemed to appease those members who sought a gradual increase in production, while accounting for a softer demand recovery in the first quarter. The new compromise among the 23-nation alliance will run through the end of March, providing more time for global oil demand to expand as vaccination programs across major economies pick up pace, with OPEC+ to decide April production targets on March 4.

"It is a great New Year present for the whole oil industry," said Russian Deputy Prime Minister Alexander Novak following the conclusion of the 2-day meeting.

The deal allows Russia and Kazakhstan to expand their output for the next two months to protect market share, with both countries allotted production increases of 75,000 bpd per month in both February and March. Russia's new production cap for February is 9.184 million bpd, increasing to 9.249 million bpd in March.

The majority of OPEC+ quotas were left unchanged for February and March, with those members who overproduced their targets in previous months still required to submit their plans for compensation on a monthly basis.

Yet, it was Saudi Arabia that delivered the most bullish surprise to the markets, sending both crude contracts as much as 5% higher.

Saudis voluntarily agreed to cut an additional 1 million bpd on top of an existing pledge of 1.881 million bpd, keeping output at 8.119 million bpd through the end of March.

"We do that with the purpose of supporting our economy, the economies of our colleagues in OPEC+ countries, to support the industry," Saudi Prince Abdulaziz bin Salman told reporters.

Cumulatively, OPEC+ will now curb 8.125 million bpd in February or some 8% of global oil supply.

Saudi Arabia has long called for caution by OPEC+ before lifting production, warning of structural damages inflicted by the pandemic that have impacted global oil demand, which once again has been hit by tightening quarantine restrictions in recent days. On Monday, England and Scotland entered a full nationwide lockdown that is threatening to overwhelm the country's health system, with Germany on Tuesday announcing extended quarantine restrictions through the end of January.

Liubov Georges can be reached at liubov.georges@dtn.com

Liubov Georges can be reached at liubov.georges@dtn.com