Oil futures rose by nearly 2% on Thursday (12 January), after Saudi Arabia said it was cutting production over and above what it promised as part of an Opec agreement in November 2016.
The kingdom's oil minister Khalid Al-Falih said it has reduced output to less than 10m barrels per day (bpd), going beyond its promise to cut 486,000 bpd in 2017. The announcement, extended an overnight rally of over 3% following reports of similar overtures by fellow Opec member Kuwait, and non-Opec producers Russia and Oman.
Additionally, the US Energy Information Administration said that the country's refineries used 17.1m bpd of crude oil last week; the most on record since 1989.
At 5:06pm GMT, the Brent front month futures contract was up 1.98% or $1.12 at $56.22 per barrel, while the West Texas Intermediate (WTI) was 1.83% or 92 cents to $53.17 per barrel. The spike implies the biggest uptick in almost six weeks as the spread between both benchmarks continues to narrow.
Analysts at Vienna-based JBC Energy said the last few days have seen a dramatic shift in the spread between the forward curves for ICE Brent and Nymex WTI.
"For much of 2016 and the very beginning of 2017, the prevailing view for the transatlantic spread over 2018 and beyond was for a strong premium (below $1.50 per barrel) for Brent over WTI, with a discount for Nymex crude underpinned by expectations of a recovery in US shale production.
"Over the past few days, however, the 2018 and 2019 Brent/WTI spread has narrowed substantially and now only averages around $0.40 per barrel. On the fundamental side, growing supplies of light crudes from the Caspian, Libya, and Nigeria as well as positive supply and investment news in the North Sea may have put some structural pressure on the Brent curve."
However, JBC Energy analysts also argued that part of the narrowing spread can be explained by an uptick in 2018 hedging activity on ICE Brent. For example, in the week since 4 January, open interest in the June 2018 contract on the ICE increased by 16%, outstripping the 9% gain seen for June 2018 Nymex WTI.
Away from the oil market, precious metals rallied after a heated press conference overnight by US president-elect Donald Trump caused the dollar to weaken across the forex board. At 5:48pm GMT, the Comex gold futures contract for February delivery was up 0.34% or $4.10 at $1,200.70 an ounce, while spot gold was 0.79% or $9.43 higher at $1,201.05 an ounce.
FXTM research analyst Lukman Otunuga said combinations of renewed Trump uncertainties and dollar weakness have elevated gold.
"This yellow metal has been a star performer with prices flying towards $1,205 as risk aversion and market jitters bolster its safe-have allure. Technical traders may pay very close attention to how prices react to $1,210 with a breakout above sparking a further up move towards $1230. With uncertainty and anxiety still shrouding the markets following Trump's news conference, Gold should remain buoyed in the short term.
Comex silver was broadly flat $16.82 an ounce, while spot platinum was up 1.06% or $10.30 to $982.45 an ounce.