DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange finished the week with a solid rally, lifting both benchmarks as much as 9% higher this week after Saudi Arabia said it would unilaterally deepen production cuts by 1 million barrels per day (bpd) for February and March, ensuring a balanced global market despite rising COVID-19 cases and quarantine lockdowns.

Other factors were at play as well, including prospects of deeper fiscal stimulus in the United States after Democrats took control of the Senate this week and will now control both chambers of Congress and the presidency. That, in turn, will ensure President-elect Joe Biden will likely have enough support to push through an ambitious agenda on additional financial support to American businesses and households, including a $2,000 check to eligible Americans. This follows $600 payments to individuals passed in legislation in late December. Arguably, direct payments to individuals could boost consumer spending and provide a lifeline to struggling businesses until vaccine inoculations yield herd immunity.

Labor Department data Friday morning showed U.S. job growth turned negative in December, with employers cutting 140,000 jobs from the previous month -- the first payroll decrease since April.

"The decline in payroll employment reflects the recent increase in coronavirus (COVID-19) cases and efforts to contain the pandemic," the Labor Department said in its report Friday.

John Hopkins University data showed virus-related deaths in the U.S. topped 4,000 for the first time Thursday, with hospitalizations also setting a fresh record high at more than 132,000.

Against those headwinds, a new study developed the University of Texas Medical Branch showed the Pfizer and BioNTech vaccine would provide protection against the new coronavirus strain that has caused a second nationwide lockdown in the United Kingdom. The study joins comments from Moderna CEO Stephane Bancel on Thursday that the Cambridge, Massachusetts, biotechnology company would prove that their COVID-19 vaccine would protect against the new variant.

Underlining this week's rally, Saudi Arabia's surprise pledge to voluntary cut its output in February and March by 1 million bpd means oil production during the first quarter will be less than anticipated, with the market heading into the week bracing for a 500,000 bpd output hike for February by the Organization of the Petroleum Exporting Countries and non-OPEC allies. Russia had pushed for the increase ahead of this week's OPEC+ meeting. Instead Russia will increase production by 65,000 bpd in February and March, and Kazakhstan is allotted a 10,000 bpd increase each month, with no quota changes for the balance of OPEC+ countries. The new agreement and unilateral cut by the Saudis mean OPEC+ will hold 7.2 million bpd of oil off the market this month and reduce output a further 8.125 million bpd in February, accounting for 8% of global oil supply.

Despite the bullish developments that pushed oil futures to better than 10-month highs, analysts cautioned that oil prices could see a correction in coming weeks should fuel demand remain depressed from the pandemic. Strict restrictions on travel and other activity around the world to contain a surge in COVID-19 cases continue to weigh on fuel sales, weakening the prospect for a recovery in demand before June.

On the session, NYMEX February West Texas Intermediate futures rallied $1.41 to settle at $52.24 barrel (bbl), with the March Brent contract on ICE gaining $1.61 to settle just below $56 bbl at $55.99 bbl. NYMEX February ULSD futures finished 4.14 cents higher at $1.5795 gallon, with the RBOB contract advancing 5.98 cents for a $1.5423 gallon settlement.

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