Crude oil bounced back sharply on Tuesday after Saudi Arabia provided hard numbers on its planned output cuts in January, raising optimism that OPEC and its allies were pushing ahead with their plan to drain the market of excess supply.
Crude Bounces Back
The West Texas Intermediate (WTI) benchmark for U.S. crude futures climbed $1.24, or 2.4%, to $52.24 a barrel on the New York Mercantile Exchange. The London-traded Brent contract for February settlement gained 90 cents, or 1.5%, to $60.87 a barrel. Both contracts are down more than 30% from their October peak.
The two-month selloff followed a half-year stretch of considerable gain for oil, with several analysts forecasting a return to $100 a barrel in the not-too-distant future. A combination of global growth woes, efficient U.S. shale production and rising inventories has delivered a major blow to that outlook.
Saudi Announces Production Cuts
Oil prices have bounced around since late last week, as traders continued to evaluate market fundamentals. On Thursday, the Organization of the Petroleum Exporting Countries (OPEC) announced it had agreed to reduce crude output in the new year. Twenty-four hours later, the cartel and its principal ally, Russia, agreed to curb production by 1.2 million barrels per day.
The Saudis have backed up that commitment by announcing Tuesday that crude supplies will fall to 10.2 million barrels per day in January compared with 11.1 million in November. At the same time, Libyan production fields remain offline after armed protesters forced a shutdown of the Sharara oil field. That will cost the war-torn nation in excess of 300,000 barrels per day, according to the state-owned National Oil Corp.
The production shortfall in Libya, combined with the export restrictions placed on Iran,