Oil prices edge higher after historic production cuts agreed
Crude prices rose after Saudi Arabia and Russia reached a deal to make the biggest production cuts on record, but investors cautioned that oil could struggle to rebound further due to the global economic damage caused by coronavirus.
In choppy trading in Asia on Monday, West Texas Intermediate — the US crude benchmark — jumped as much as 8.7 per cent to $24.74 hours after Opec+ producers agreed to remove almost 10m barrels per day from global supply. Brent — the international benchmark — gained as much as 8 per cent to $33.99.
The cuts start from May and diminish in size before expiring in April 2022.
The “problem is that Opec+ have taken too long to get to this point,” said Warren Patterson, head of commodities strategy at ING. “The issue is that we are seeing significant levels of demand destruction right now,” he added.
Oil prices were still down by about 50 per cent since the start of the year. That is due to the prospect of the coronavirus outbreak — which has confined billions of people to their homes and battered international travel and trade — plunging the global economy into a recession, severely hitting oil demand.
Sebastien Galy, senior macro strategist at Nordea Asset Management, said that the deal will “not impress” investors, as the production cuts were not enough to offset the loss of demand. “What matters far more is the speed with which the world reopens for activity,” Mr Galy added.
Traders had been hoping for a larger reduction in daily production of up to 20m barrels, said Edward Moya, an analyst at broker Oanda, meaning “any bullishness at the open [will] be shortlived”. The agreement will “unfortunately will fall well short of stabilising oil markets”, he added.
Global equity markets were slightly weaker on Monday.
Japan’s Topix stock benchmark fell 0.5 per cent the day after Tokyo warned that it could take as long as two months to stem the spread of the country’s coronavirus outbreak.
Shinzo Abe, Japan’s prime minister, on Sunday advised Japanese to stay home and avoid social interactions due to a spike in Covid-19 infections.
China’s CSI 300 of Shanghai- and Shenzhen-listed stocks slipped 0.3 per cent, while South Korea’s Kospi share index was down 0.8 per cent.
Trading in stock futures suggested Wall Street’s S&P 500 benchmark would slip by 1.2 per cent when US markets open later in the day. The index has rebounded by about 25 per cent since late March on investors’ hopes that the rate of new Covid-19 infections worldwide could be levelling off.
Japan’s yen, viewed by investors as a haven during times of uncertainty, added 0.3 per cent to ¥108.11. The yield on 10-year US Treasuries increased 0.01 percentage points to 0.733 per cent. Prices fall as yields rise.
Markets in Hong Kong, Australia and much of Europe are closed on Monday for a public holiday.