Oil prices rise 4.2% but markets slip 2.3% after historic deal to cut 10 million barrels to end Moscow-Saudi Arabia price war amid coronavirus slump in demand
- Saudi Arabia, Russia and others agreed to cut oil production from next month
- The Brent crude benchmark was up by 4.2% but Tokyo’s Nikkei index was down
- Fuel consumption has fallen by 30 per cent worldwide because of the pandemic
- Learn more about how to help people impacted by COVID
Oil prices were up but Asian stock markets fell today after oil-producing nations agreed a ‘historic’ deal to limit production because of the coronavirus pandemic.
Saudi Arabia, Russia and others agreed to slash their output by nearly 10million barrels per day to prop up prices after a slump in demand.
Fuel consumption is down roughly 30 per cent across the world because of the health crisis and resulting economic standstill.
Today, the Brent crude benchmark was up by 4.2 per cent to $32.83 per barrel, but there were doubts over whether the move would be enough to stabilise markets.
Tokyo’s Nikkei stock index fell by 2.3 per cent today as analysts said the deal could not fill the void in demand for travel and business.
Japan’s Nikkei stock market dropped by more than two per cent today (as shown on this graph) despite a deal to prop up global oil prices
Oil producers reached their deal last night in a bid to end a Russia-Saudi price war which had sent prices tumbling to nearly $20 a barrel.
The countries agreed a compromise deal via video conference, settling on a cut of 9.7million barrels per day from May, after Mexico demanded a cut from 10million.
The agreement between Vienna-based OPEC and partners foresees deep output cuts in May and June followed by a gradual reduction in cuts until April 2022.
OPEC Secretary General Mohammad Barkindo called the cuts ‘historic’.
‘They are largest in volume and the longest in duration, as they are planned to last for two years,’ he said.
Another oil benchmark, West Texas Intermediate, was up about five per cent at $23.94 a barrel in Asian afternoon trade, after earlier rallying almost eight per cent.
In the UK, unleaded petrol prices had fallen below £1 for the first time in 15 years earlier this month as a result of the slump.
Saudi Energy Minister Prince Abdulaziz bin Salman, who chaired the meeting together with his Russian and Algerian counterparts, confirmed that the discussions ‘ended with consensus’.
US President Donald Trump welcomed a ‘great deal for all’, saying on Twitter it would ‘save hundreds of thousands of energy jobs in the United States’.
He added he ‘would like to thank and congratulate’ Russian President Vladimir Putin and Saudi Crown Prince and de facto leader Mohammed bin Salman.
An oilfield in Russia is pictured in operation last month, as Russia and Saudi Arabia agreed a deal with other oil-producing nations to slash their output by nearly 10million barrels a day
The Kremlin confirmed the joint phone call, adding that Putin and Trump agreed on the ‘great importance’ of the deal.
Mexico’s initial reluctance had led to a standoff that cast doubt on efforts to bolster oil prices, pushed to near two-decade lows.
Russia and Saudi Arabia had both ramped up output in a price war to maintain market share during the downturn.
Rystad Energy analyst Per Magnus Nysveen said Sunday’s agreement provided ‘at least a temporary relief’.
His colleague Bjornar Tonhaugen said that even though the deal made ‘the single largest output cut in history’, prices were still expected to see ‘renewed downwards pressure’.
Other analysts were also concerned that the cuts did not go far enough with storage tanks rapidly filling up.
‘The hard work lies ahead given that the market is very sceptical that OPEC+ are actually going to be able to come up with their near 10million barrels a day of production cuts,’ Andy Lipow of Lipow Oil Associates LLC told Bloomberg News.
AxiCorp’s Stephen Innes added that ‘there remain concerns the agreement could be a day late and a ‘barrel short’ to prevent a decline in prices in the coming weeks as storage capacity brims’.
Harry Tchilinguirian of BNP Paribas said ‘a sustained recovery’ in the oil price was not expected ‘until pent-up demand is released in Q3 on the lifting of confinement and social distancing measures related to COVID-19’.