Oil prices rose after Saudi Arabia and Russia reached a deal to make the biggest production cuts on record, but investors cautioned that crude could struggle to rebound further due to the global economic damage caused by coronavirus.
Meanwhile, share markets stumbled as investors looked ahead to economic and earnings data this week that could underscore the extent of the pandemic’s impact.
In choppy trading in Asia on Monday, West Texas Intermediate gained 4.8 per cent to $23.85 per barrel hours after Opec+ producers agreed to remove almost 10m barrels per day from global supply.
The US benchmark had earlier jumped as much as 8.7 per cent. Brent — the international benchmark — was up 4.1 per cent $32.80, having earlier rallied 8 per cent.
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,”
Mr Patterson added that there was “downside risk” to crude prices, given a global glut was likely to last through the second quarter, but that the deal could put a floor under Brent crude of about $25 per barrel. His price target for Brent at the end of 2020 is $50 per barrel or about 50 per cent higher than the current price.
Oil prices are still down by about half 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, decimating oil demand.
Sebastien Galy, senior macro strategist at Nordea Asset Management, said the deal would “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 said.
Traders had been hoping for a larger reduction in daily production of up to 20m barrels, said Edward Moya, an analyst at broker Oanda, adding that the agreement will “unfortunately will fall well short of stabilising oil markets”.
With the mood tentative, equity markets were slightly weaker on Monday morning.
Japan’s Topix stock benchmark fell 1.3 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 1 per cent.
Trading in stock futures suggested Wall Street’s S&P 500 benchmark would drop by 1.3 per cent when US markets open later in the day. The index has rebounded by about 25 per cent since late March on hopes that the rate of new Covid-19 infections worldwide could be levelling off.
The rally could be tested this week by a slew of earnings from companies including Wall Street banks Morgan Stanley, Bank of America and Citigroup.
Japan’s yen, viewed by investors as a haven during times of uncertainty, strengthened 0.5 per cent to ¥107.93 per US dollar. The yield on 10-year US Treasuries inched up 0.01 percentage point to 0.727 per cent. Prices fall as yields rise.
Markets in Hong Kong, Australia and much of Europe were closed on Monday for a public holiday.
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April 13, 2020 at 12:27PM
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Oil prices edge higher after historic production cuts agreed - Financial Times
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