The price of oil advanced for a second consecutive day on Tuesday, after Saudi Arabia increased pricing to Asia in a sign that demand was improving globally.
Brent crude, the global benchmark, advanced 0.9% to $58.64 a barrel. The global benchmark on Monday posted its biggest single-day rally since February 3.
Meanwhile, the price of West Texas Intermediate (WTI) climbed 2.1% to $53.23 a barrel, a nearly two-month high.
Crude prices received a boost after state-owned Saudi Aramco announced over the weekend it was lowering its discount to Asia. Beginning in May, the world’s largest producer will reduce its discount to 60 cents a barrel to the regional benchmark. That represented a decline of 30 cents a barrel.
Oil prices were also supported by signs that an Iran nuclear deal would not immediately increase the global supply as had been previously feared. Iran, having secured a general framework about its nuclear program last week, is looking to boost oil exports once a series of economic sanctions are lifted. However, the final agreement will not be reached until June, which means Tehran likely won’t begin increasing its exports until several months later. According to analysts, it may be until 2016 before Iranian oil begins to flood the market in any substantial way.
Analysts expect oil prices to remain low for much of the year. Prices are unlikely to fall significantly below $40 a barrel, given that oil consumption is actually increasing, despite slowing demand.
Saudi Arabia remains confident that demand will eventually rebound. The country’s oil minister Ali al-Naimi said as much at a conference in Riyadh last month. However, he cautioned western producers that OPEC – the 12-nation oil cartel supplying 30% of the global market – would not bear the burden of boosting prices without participation from non-OPEC countries. According to al-Naimi, western producers must also work toward mitigating the supply glut.
US crude inventories have set new record highs for 12 straight weeks, according to the Energy Information Administration (EIA). The EIA reported last week that crude inventories increased by 4.8 million barrels to 471.4 million in the week to March 27. That was above the median forecast calling for an increase of 4.2 million barrels. Stockpiles at a key delivery point in Oklahoma rose by 2.7 million barrels to 58.9 million, data showed.
The EIA will release last week’s data on Wednesday.