Oil prices have reached a one-week high as the immediate term outlook focuses on the Democratic sweep in the Georgia dual runoff race and Saudi Arabia committing to a production cut.
Brent (BZ=F) gained 0.7%, sitting at $54.59 (£39.47) a barrel at around 8.46am in London.
The crude (CL=F) standalone price hit $51.01 a barrel, up 0.8%.
“Commodities in general have done well on the back of the reflation trade since last year,” said Societe Generale in a note on Thursday. “The blue wave in the US and Saudi production cut should augur well for oil in the near term, though prices are technically overbought.”
Prices started rallying further on Wednesday as Saudi Arabia, the de-facto leader of the Organisation of the Petroleum Exporting Countries and its allies (OPEC+) alliance, surprised the market by agreeing to make bigger output cuts than expected during its current meeting.
This also means that Russia and Kazakhstan will lift their output by a combined 75,000 barrels a day (bpd) in February and March to satisfy the group’s ambitions. Both countries had been pushing to increase total oil output in February by another 500,000 bpd.
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Research by from the US Energy Information Administration (EIA) published on Wednesday revealed that crude oil prices in 2020 were the lowest in more than 15 years, as a result of global responses to the COVID-19 pandemic causing a steep drop in petroleum demand. Highly volatile crude oil markets as well as rising US and global liquid fuels inventories also contributed to the price pressure on crude.
Global oil demand growth is expected to reach 5.7 million barrels per day in 2021, according to a December oil market report from the IEA, which cut its forecast by 170,000 barrels per day from its previous estimate.
Yet, hopeful signs have emerged for oil markets of late, as US lawmakers have certified president-elect Joe Biden's victory. Following the victories of Jon Ossoff and the Reverend Raphael Warnock, both Democrats, in the Georgia dual runoff race, the party now controls the House, Senate and the presidency, making it easier for Biden to pass fiscal stimulus policies that will get the economy moving again, leading to more people traveling via gasoline-fueled transportation, such as cars and planes.
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