Oil prices rise on deal for record production cut
Oil prices rose on Monday, one day after petroleum-producing nations agreed to the largest production cut ever negotiated.
Sunday’s agreement marked an unprecedented coordinated effort by Russia, Saudi Arabia and the United States to stabilize oil prices and, indirectly, global financial markets.
Saudi Arabia and Russia typically take the lead in setting global production goals. But President Trump, facing a re-election campaign, a plunging economy and American oil companies struggling with collapsing prices, took the unusual step of getting involved after the two countries entered a price war a month ago. Mr. Trump had made an agreement a key priority.
It was unclear, however, whether the cuts would be enough to bolster petroleum prices. Before the coronavirus crisis, 100 million barrels of oil each day fueled global commerce, but demand is now down about 35 percent. While the cuts agreed to on Sunday were significant, they still fall far short of what is needed to bring oil production in line with demand.
The plan by OPEC, Russia and other allied producers in a group known as OPEC Plus will slash production by 9.7 million barrels a day in May and June, or close to 10 percent of the world’s output.
Analysts expect oil prices, which soared above $100 a barrel only six years ago, to remain below $40 for the foreseeable future. The American oil benchmark price was just over $23 a barrel on Sunday night.
“This is at least a temporary relief for the energy industry and for the global economy,” said Per Magnus Nysveen, head of analysis for Rystad Energy, a Norwegian consultancy. “The industry is too big to be let to fail.”
On Monday oil markets cheered the prospect of production cuts. Futures for West Texas Intermediate, the U.S. oil price benchmark, were up more than 4 percent to about $24 a barrel. Futures for Brent crude rose by a similar amount, to about $33 a barrel.
Global markets began the week in the red on Monday, as investors in Asia weighed the latest coronavirus developments as well as the new oil deal between major petroleum-producing nations.
Major markets in Japan and elsewhere were down at least 1 percent. Futures markets predicted Wall Street would open lower as well.
Investors on Monday were parsing the implications of the oil production deal between members of the Organization of Petroleum Exporting Countries and other major countries to trim output to put a floor on fuel prices. Low oil prices are generally good for the world economy, but the disruptions to the energy industry and to countries that depend on selling petroleum have unnerved investors. Oil prices rose by about 5 percent on Monday in the wake of the deal.
Many markets were also trading for the first time since Thursday after being closed for the Good Friday holiday. While the United States and other countries appeared to continue to make progress in containing the coronavirus outbreak, signs of disarray within the Trump administration cast a shadow over global prospects.
Reflecting the mixed sentiment, prices for U.S. Treasury bonds were lower, generally an indication of improved sentiment.
In Japan, the Nikkei 225 index was down 1.6 percent midday. South Korea’s Kospi was down 1 percent. The Shanghai Composite Index in mainland China was down 0.3 percent. Hong Kong markets were closed for a holiday.
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After slashing the majority of its trips domestically and abroad, United Airlines said it would add a few international routes next month. The carrier plans to start daily service on May 4 on three routes: Chicago to London, Newark to Amsterdam and Washington to Frankfurt. It also plans to offer three flights a week between Washington and Buenos Aires starting on May 5.
Clifford Krauss and Carlos Tejada contributed reporting.