On Monday, oil prices jumped by more than USD1/barrel after the Organization of Petroleum Exporting Countries and its non-member oil producer allies (OPEC+) reached an agreement to their record-high output cut. However, the demand concerns due to the coronavirus outbreak capped the increase.
Brent crude oil futures surged by 3.9% or USD1.23 to USD32.71/barrel by 00.58 GMT, although it was still down from the opening at the session high of USD33.99/barrel. US WTI crude oil futures skyrocketed by 6.1% or USD1.39 to USD24.15/barrel, from the high of USD24.74/barrel.
Previously on Sunday, OPEC+ agreed to cut output by 9.7 million bpd to support global oil prices. Kuwait’s oil minister added that the cut could amount to 20 million bpd or 20% of global supply as Saudi Arabia, Kuwait, and the UAE volunteered to cut even deeper.
The Saudi energy minister said that OPEC+ supply could go down by 12.5 million bpd from the current output levels.
The Kremlin said that leaders of the world’s top three oil producers, Russian President Vladimir Putin, US President Donald Trump, and Saudi Arabia’s King Salman, all supported the deal to cut global crude output.
OPEC+ has expressed its desire for producers outside the group, including the US, Canada, Brazil, and Norway, to cut a further 5% or 5 million bpd. Canada and Norway signalled their willingness to cut, but the US said that the free market would cut output by themselves due to low prices.
Analysts expected the cut deal to avoid a very deep crisis in the global oil industry due to the restrain in the built-up inventories.
However, the price gains were still capped by the concerns on the demand as the coronavirus pandemic kept many people, including businesses and governments on lockdown.
BNP Paribas’ Harry Tchilinguirian noted that the OPEC+ arrangement could establish a floor for the prices, but a sustained oil price recovery is unlikely to happen until at least the third quarter, as the pent-up demand is released.
