SINGAPORE (AFP) – Oil prices rose Monday after top producers agreed to massive output cuts, but gains were capped as doubts grew about whether the move was enough to stabilize coronavirus-ravaged energy markets.
US benchmark West Texas Intermediate was up about five percent at $23.94 a barrel in Asian afternoon trade, after earlier rallying almost eight percent.
Brent crude, the international benchmark, also fell slightly from an earlier strong rally to trade 4.2 percent higher at $32.83 a barrel.
While the rises were healthy, they were limited compared to the double-digit jumps and falls of recent weeks, with analysts concerned there will be still be massive oversupply in the market as the virus pandemic throttles demand.
OPEC producers dominated by Saudi Arabia and allies led by Russia thrashed out a compromise deal Sunday after Mexico had balked at an earlier agreement struck on Friday.
The videoconference summit agreed to a cut of 9.7 million barrels per day from May, according to Mexican Energy Minister Rocio Nahle, down slightly from 10 million barrel reduction envisioned earlier.
OPEC Secretary General Mohammad Barkindo called the cuts ”historic” — and the agreement appeared to mark an end to a bitter price war between Riyadh and Moscow.
Oil markets have been in turmoil for weeks as lockdowns and travel restrictions imposed to combat the outbreak batter demand, while the Saudi-Russian row compounded the crisis.
But analysts were left disappointed at a cut that will go nowhere near to making up for the expected demand loss due to the pandemic, forecast at anywhere between 15 and 30 million barrels a day.
Storage tanks worldwide are also rapidly filling up.
”The deal is a little less than the market expected,” Andy Lipow, president of Lipow Oil Associates LLC in Houston, told Bloomberg News.
”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 10 million barrels a day of production cuts.”
AxiCorp’s Stephen Innes added: ”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”.
The agreement between the Vienna-based Organization of the Petroleum Exporting Countries and partners foresees deep output cuts in May and June followed by a gradual reduction in cuts until April 2022.
Barkindo added that the deal ”paved the way for a global alliance with the participation of the G20”.
Saudi Energy Minister Prince Abdulaziz bin Salman, who chaired the meeting together with his Russian and Algerian counterparts, also 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, both of whom he had spoken to.
The Kremlin confirmed the joint phone call, adding that Putin and Trump agreed on the ”great importance” of the deal.
”This is good,” Canadian Natural Resources Minister Seamus O’Regan tweeted. ”We welcome any news that brings stability to global oil markets.”
Initial reticence from Mexico to introduce output cuts had led to a standoff that cast doubt on efforts to bolster oil prices, pushed to near two-decade lows.
Oil prices have slumped since the beginning of the year due to the COVID-19 pandemic that has sapped demand as countries around the world have put their populations under lockdown.
Compounding the problem, key players Russia and Saudi Arabia had engaged in a price war, ramping up output in a bid to hold on to market share and undercut US shale producers.
Rystad Energy analyst Per Magnus Nysveen said Sunday’s agreement provided ”at least a temporary relief” as fuel consumption was expected to fall globally by 27 million barrels per day in April and 20 million barrels per day in May.
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 skeptical that OPEC+ are actually going to be able to come up with their near 10 million barrels a day of production cuts,” Andy Lipow, president of Lipow Oil Associates LLC in Houston, told Bloomberg News.