The prices of the two oil benchmark contracts (Brent and WTI) continue their upward trend. Last week, the price of Brent crude hit an 11-month high at the close of $56. Since the opening of the first session of 2021 on January 4, oil prices have appreciated by almost 10%. In its latest analysis of the oil markets, the specialized institute, IFP Energies Nouvelles (Ifpen), pointed out that this rise in crude prices is taking place in a context of recovery in demand.

A demand stimulated, among other things, by the start of vaccination programs in many regions of the world and by OPEC+ which, at its meeting on January 5, reconfirmed the decision to increase production by 0.5 mb/ d from January 2021, thus adjusting the production reduction from 7.7 mb/d to 7.2 mb/d. According to Ifpen, the rise in oil prices is, of course, supported by the recovery in demand, but it is, above all, by the announcement of Saudi Arabia, on the sidelines of the meeting of January 5, a voluntary reduction (not recorded in the quotas published by OPEC) of 1 mb/d. The French research institute, however, recalled that according to the IEA and the other agencies (EIA and OPEC), the oil market should be in deficit in 2021 by 0.8 to 1.6 mb/d on average.

In this context, Saudi Arabia's announcement surprised the markets, which explains the +3 dollar increase in the price of a barrel of Brent. Is Saudi Arabia bucking the market? No, answers Ifpen in its report, indicating that the position of the kingdom can be explained from the point of view of oil stocks, the recent evolution of demand and OPEC production.

By deciding to voluntarily reduce its production, Saudi Arabia is primarily targeting the oil stocks that have accumulated in recent months, underlined the French institute, which refers to the latest IEA report (December 2020) which revealed that the oil surplus accumulated during the first 3 quarters of the year 2020 exceeds 1,200 mb. Much of it is currently in stockpiles in OECD countries, offshore storage and China, with the rest harder to track and eluding statistics.

According to the latest available data, OECD commercial stocks fell by 55.3 mb, but still remain above the five-year average. Stocks at sea have also declined, but are still nearly double last year's levels. In the United States, according to weekly data from the EIA agency for the week of January 1, crude oil inventories fell by 8 mb, 48.7 mb above the five-year average. For Ifpen, Saudi Arabia's decision is also explained by the evolution of demand.

While vaccination campaigns have given hope, most current scenarios do not envisage a recovery before the second or even the third quarter of this year. The recent upsurge in Covid-19 cases has prompted several governments to tighten health protocols and restrict travel again. Finally, Saudi Arabia's position is also cautious given the resumption of production in Libya.