Frank Kane

DUBAI: Oil prices surged back to pre-pandemic levels on Tuesday in the wake of Saudi Arabia’s surprise decision last week to cut output by an extra 1 million barrels a day.

Brent crude, the international benchmark, rose above $56 a barrel for the first time since February 2020, before economic lockdowns hit worldwide demand for oil, especially transport fuels.

After a divided meeting last week of OPEC+, the alliance led by Saudi Arabia and Russia, Saudi Energy Minister Prince Abdul Aziz bin Salman promised to cut an extra 1 million barrels for the next two months as a “gesture of goodwill” to global energy markets. “We will support the market and we will support the industry. We are the guardians of the industry,” he said.

Some analysts were worried that the price could fall again as some major economies went back into lockdown amid a surge in COVID-19 infections. The Saudi move has headed off that threat, and experts are now revising their forecasts.

Damien Courvaln, analyst at Goldman Sachs, said: “The unilateral and unexpected production cut from Saudi Arabia will offset the near-term negative hit to demand from a quickly spreading virus.” Goldman Sachs forecasts that oil will reach $65 a barrel this summer, earlier than expected.

Eugen Weinberg of Commerzbank said: “Saudi Arabia is ensuring through its additional voluntary cuts that the market is undersupplied, if anything.”

Rising oil prices could also allow beleaguered American shale producers to boost production, but Courvain said slow change in US oil activity this year would be slow unless West Texas International, the US standard, rallied to the $60-$65 range.

WTI was at $53 a barrel yesterday, also a post-pandemic best.