Oil prices climbed nearly 5% on Tuesday after news that Saudi Arabia will make voluntary cuts to its oil output, while international political tension simmered over Iran's seizure of a South Korean vessel.
Brent crude futures rose $2.51, or 4.9%, to settle at $53.60 a barrel. U.S. West Texas Intermediate crude ended $2.31, or 4.9%, higher at $49.93 a barrel.
Saudi Arabia will make additional, voluntary oil output cuts of 1 million barrels per day (bpd) in February and March. The cuts are part of a deal to persuade most producers from the group consisting of the Organization of the Petroleum Exporting Countries and allies to hold output steady amid concerns that new coronavirus lockdowns will hit demand.
"Saudi Arabia put the cherry on the cake and if there is one way to describe what its voluntary cut means for the market, 'happy hour' is a pretty fitting term," said Bjornar Tonhaugen, Rystad Energy's head of oil markets.
OPEC+ resumed talks on Tuesday after reaching a deadlock over February oil output levels this week.
An internal OPEC+ document dated Jan. 4 seen by Reuters highlighted bearish risks and stressed that "the reimplementation of COVID-19 containment measures across continents, including full lockdowns, are dampening the oil demand rebound in 2021".
Meanwhile, tensions around OPEC member Iran's seizure of a South Korean vessel continued. Iran denied on Tuesday it was using a South Korean ship and its crew as hostages, a day after it seized the tanker in the Gulf while pressing a demand for Seoul to release $7 billion in funds frozen under U.S. sanctions.
Still, coronavirus lockdowns, which have weighed on fuel demand since early last year, loom. Britain began its third COVID-19 lockdown on Tuesday.
Investors awaited industry data on U.S. crude stockpiles due later on Tuesday. U.S. crude oil stockpiles were seen lower last week for the fourth week in a row, while inventories of refined products likely rose, a Reuters poll showed.
(Reporting by Stephanie Kelly; additional reporting by Noah Browning, Shadia Nasralla and Florence Tan; Editing by Marguerita Choy and David Gregorio)