On Tuesday, OPEC and its oil-producing allies, known as OPEC+, agreed to hold output largely steady in February. Saudi Arabia’s surprise voluntary cut — announced in a press conference following the meeting — will more than offset production increases from Russia and Kazakhstan. The two nations will add a combined 75,000 barrels per day to the market in both February and March. It was the group’s second day of discussions, after talks ended in stalemate on Monday.

“WTI oil prices have climbed above $50, for a time, today, on an increasingly likely surprise move by OPEC+ to cut production next month, rather than raising it,” noted Again Capital’s John Kilduff. “The renewed lockdowns in the U.K. Europe has spooked the group,” he added. Still, oil prices remain below pre-pandemic levels. WTI closed out 2020 around $48.50 per barrel, registering a 20.54% loss for the year. At the beginning of 2020, WTI traded above $63 per barrel.

OPEC and its allies have been one of the driving forces behind price swings. At its December meeting, the group agreed to increase production by 500,000 barrels per day beginning in January after days of tense discussions. The group agreed to meet on a monthly basis going forward in order to set the next month’s output level. Beginning on Jan. 1, total production cuts stood at 7.2 million barrels per day. Rebecca Babin, senior energy trader at CIBC Private Wealth, noted that while the market views an extension of the cuts as positive, the fact that the group is failing to reach a consensus on the path forward cannot be discounted. This is especially true with Saudi Arabia exercising voluntary cuts. “I view this type of an ‘agreement’ as an indication that it is getting harder to get OPEC+ members in line and keep production constrained while demand looks threatened by ongoing lockdowns and slow vaccination roll out. WTI traded briefly above $50 following the headlines, but I suspect a more negative interpretation of today’s meeting may cause crude to fail at $50,” Babin said.

Elsewhere, rising tensions in the Middle East boosted prices further. “Away from the OPEC+ poker table, the oil market found a helping hand in the Middle East, where tensions are flaring again,” said Bjornar Tonhaugen, head of oil markets at Rystad Energy. “Iran seizing a tanker creates, again, instability in the region and questions are raised again over the reliability of the oil transport Gulf sea roads. If the situation doesn’t deescalate quickly, oil prices will benefit from the unpredictability.”

The dollar fell to its lowest in more than two years against the euro as currency traders looked past a new delay in U.S. stimulus checks and maintained bets that additional financial aid was still likely. The Democrat-led U.S. House of Representatives voted to meet President Trump’s demand to increase direct Covid-19 aid payments to Americans hurting from the pandemic to $2,000.

Asian shares retreated as investors cashed in on a recent rally, while the euro flirted with highs not seen in more than 2-1/2 years on as hopes of a gradual global economic recovery. Oil prices could gain strength as vaccination programs around the world begin next year, allowing countries to relax restrictions on movement and business activity.

U.S. physical crude oil grades strengthened on Tuesday as the API reported a decline in stockpiles, dealers said. Crude oil stocks fell by 4.8 million barrels last week to about 492.9 million barrels, exceeding analysts’ expectations in a Reuters poll for a draw of 2.6 million barrels, data from API showed. In the short-term, concerns over coronavirus lockdowns are likely to cap gains.

A new variant of the virus in the United Kingdom has led to the reimposition of movement restrictions, hitting near-term demand and weighing on prices, while hospitalizations and infections have surged in parts of Europe and Africa.

Fossil-fuel demand in coming years could remain softer even after the pandemic as countries seek to limit emissions to slow climate change. Major oil companies, such as BP and Total SE, published forecasts that include scenarios where global oil demand may have peaked in 2019.

A Jan. 4 meeting of the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, a group known as OPEC+, also looms over the market. OPEC+ is tapering record oil output cuts made this year to support the market. The group is set to boost output by 500,000 barrels per day (bpd) in January, and Russia supports another increase of the same amount in February.

U.S. crude inventories fell by 562,000 barrels in the week to Dec. 18 to 499.5 million barrels, the Energy Information Administration said on Wednesday. Gasoline stocks fell by a surprise 1.1 million barrels in the week to 237.8 million barrels, the EIA said, while distillate stockpiles fell by 2.3 million barrels in the week to 148.9 million barrels, more than expected. “Overall, what this report reflects is that we’re starting to see continued improvement in demand,” said Phil Flynn, senior analyst at Price Futures Group in Chicago. “It reflects that we’re seeing a market that’s getting more in balance.”

A falling U.S. dollar also supported prices. A weak greenback makes dollar-denominated commodities such as crude oil cheaper to holders of other currencies. Investors also kept an eye on Nigeria, where supply disruptions helped lift prices. Exxon Mobil Corp issued a force majeure on the Qua Iboe crude oil export terminal last week after a fire hit the facility and injured two workers. A source told Reuters production is expected to resume in early January. The stream was expected to load about 180,000 barrels per day (bpd) in December and 150,000 bpd in January.

Still, oil markets remain jittery about the future recovery of oil demand as a new, highly infectious variant of the novel coronavirus has hit Britain, prompting a slew of countries to shut their borders to the country. The number of Americans filing first-time claims for unemployment benefits unexpectedly fell last week, though remained elevated as more businesses faced restrictions and consumers hunkered down amid rising COVID-19 cases.