Oil prices jump as producers cut output

Brent crude settled up $1.11, or 2%, at $57.46 a barrel, its third straight day of gains.

Oil prices rose around 1 per cent on Tuesday after major producers showed they were cutting crude output in line with their commitments on restraint, supporting a market thrown out of kilter by weak demand during the coronavirus pandemic.

Oil prices continued to rise as the USA market opened on Tuesday, extending gains for the second straight day, and hit a 1-year high after OPEC increased its output less than expected in January, which shows that the group is still working on balancing the market, and ahead of the American Petroleum Institute's preliminary data on the U.S. crude inventories. Brent's second-month contract is the most expensive versus a month later in more than a year in a bullish structure known as backwardation.

An OPEC+ ministerial meeting will be held Wednesday to review the oil market.

Meanwhile, OPEC may be adding less supply onto the market than expected following its January decision.

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In January, OPEC reported 25.75 million barrels per day (bpd) pumping, which is an increase of 160,000bpd from December 2020, as per the survey. U.S. oil gained 52 cents, or 1 per cent, to US$54.07.

Front-month futures for West Texas Intermediary (WTI) rallied from the mid-$53.00s to above $55.00 per barrel for the first time since January 2020, prior to the global spread of the Covid-19 virus, closing the session with gains of $1.51 or almost 3%.

Weekly data on US petroleum supplies will be released by the American Petroleum Institute late Tuesday, with official government data from the Energy Information Administration due Wednesday.

"It looks like OPEC compliance is really pushing the complex higher, as well as the expectation that we will see USA inventories tighten over the next few weeks", said Phil Flynn, an analyst at Price Futures Group in Chicago.

But the bank acknowledged a perceived slow rollout in vaccine delivery in many countries by stating, "We are moderating the demand rebound to account for a slower start of vaccination and a cautious pace of reopening, leading in particular to a slower recovery in jet demand".