A worker adjusts the valve of an oil pipe at West Qurna oilfield in Iraq’s southern province of Basra.Oil prices rose 2 per cent on Tuesday, reaching their highest in 12 months. Image Credit: Reuters

New York:  Oil prices rose 2 per cent on Tuesday, reaching their highest in 12 months after major producers showed they were reining in output roughly in line with commitments.

The global and US crude benchmarks rallied as optimism about more U.S. economic stimulus added to bullishness from OPEC production levels, which rose less than expected in January.

Brent crude settled up $1.11, or 2 per cent, at $57.46 a barrel, its third straight day of gains. During the session, it touched $58.05, the highest since January last year.

US oil gained $1.21, or 2.3 per cent, to close at $54.76, after hitting a session high of $55.26, the highest in a year.

Both contracts traded higher after the settlement, after the American Petroleum Institute, a trade group, said oil and fuel inventories were lower on the week.

Small increase in Opec output

Crude output from the Organization of the Petroleum Exporting Countries rose in January for a seventh month but the increase was smaller than expected, a Reuters survey found.

Voluntary cuts of 1 million barrels per day by OPEC's de facto leader, Saudi Arabia, are to be implemented from the beginning of February through March.

Russian output increased in January, in line with the OPEC+ pact, while in Kazakhstan, oil volumes fell for the month.

Weather impact

The rally picked up steam as the U.S. Congress looked ready to adopt an economic stimulus package, and as cold US weather boosted heating oil demand.

"You got the U.S. economic stimulus package that no one thought we would get," said Bob Yawger, director of energy futures at Mizuho in New York.

The Democratic-led US House of Representatives prepared to take the first step forward on President Joe Biden's $1.9 trillion COVID-19 relief package.

A cold snap and heavy snow in the U.S. Northeast drove the margin for heating oil to an 8-month high of $15.84, lending further support to crude.

US distillate fuel stockpiles, including heating oil, fell in the latest week, according to the API. The group said gasoline and crude stockpiles also fell. 

However, energy giant BP flagged a difficult start to 2021 amid declining product demand, noting that January retail volumes were down about 20 per cent year-on-year, compared with a decline of 11 per cent in the fourth quarter.

Oil demand is nevertheless expected to recover in 2021, BP said, with global inventories seen returning to their five-year average by the middle of the year.