Oil prices hold firm in wake of record deal to cut output

● Some analysts remain sceptical about agreement ● Reaction muted with markets on Easter holiday

Crude prices held steady yesterday in the wake of a record oil deal between Opec producers and allies that will slash global output by about 10 per cent.

Justhoursbeforeasianstock markets reopened, Opec – the Organisation of the Petroleum Exporting Countries – Russia and other oil producers finalised an unprecedented production cut of nearly ten million barrels, or a tenth of global supply, seeking to boost crashing prices and call an end to a fierce price war.

The deal, which was agreed via video conference, is the largest cut in global oil production ever to have been agreed.

Mexico had initially blocked the deal. Iran’s oil minister also said several Middle Eastern nations agreed to an additional cut of two million barrels a day.

Analysts said the cuts were not enough to make up for the void in demand due to business and travel shutdowns triggered by the coronavirus pandemic. But the deal at least helped resolve a price war that took US crude to near $20 per barrel.

Jeffrey Halley of Oanda noted: “With a demand shock estimated at between 15 to 30 million barrels of oil a day, depending on who you talk to, it is clear that the Opec+ agreement contains more hope than reality.

“The entire construction is underwhelming, to say the least, and really relies on production collapsing in the US and Canada to deliver the level of cuts required.”

Sandy Fielden, director of oil research at Morningstar, said: “This is an unprecedented agreement because it’s not just between Opec and Opec+… but also the largest supplier in the world which is the US as well as other G20 countries which have agreed to support the agreement both in reducing production and also in using up some of the surface supply by putting it into storage.”

Markets in Hong Kong, Sydney and some other markets including the London Stock Exchange were closed for Easter holidays.

“With much of the world still on holiday, this will be a quiet start to the week,” said Robert Carnell, regional head of research in Asia at ING. “Increasingly, thoughts will turn to the process of deconfinement, something that we expect will be very slow and phased.”

Oil prices have collapsed as the coronavirus outbreak has largely halted global travel and slowed down other energy-chugging sectors such as manufacturing. It has devastated the oil industry in the US, which now pumps more crude than any other country. But some producers have been reluctant to ease supply.

Even US senators had warned Saudi Arabia to find a way to boost prices as US shale firms face far-higher production costs. Some US producers had been trimming output.