Oil prices rise on faith in supply cuts and demand recovery

Stocks stutter as investors worry about second wave of coronavirus

FILE PHOTO: The sun is seen behind a crude oil pump jack in the Permian Basin in Loving County, Texas, U.S., November 22, 2019. Picture taken November 22, 2019.  REUTERS/Angus Mordant/File Photo
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Oil prices pushed higher in early trade on Friday after Opec producers and allies promised to meet their supply cut commitments and two major oil traders said demand was recovering well.

Brent rose 0.4 per cent to trade at $41.69 per barrel, while West Texas Intermediate, the key US gauge, climbed 0.6 per cent to $39.07 per barrel.

Plans by Iraq and Kazakhstan to make up for overproduction in May on their supply cut commitments supported the market. The promises came out of a meeting by a panel monitoring compliance by the Opec and its allies, a grouping called Opec+.

If the producers do compensate over the next three months for their overproduction, that will effectively take extra barrels out of the market, even if Opec+ does not extend its record 9.7 million barrels per day supply cut beyond July.

"The supply cuts that they [Opec+] have implemented and with other members like Iraq proposing to make up for the lack of adherence to the agreement in May and June does tighten up the market in the shorter term," said ANZ senior commodity strategist Daniel Hynes.

"But it's not a strong signal of a wholesale shift in the medium term outlook in the market."

Meanwhile, Asian shares wobbled in uneven trade on Friday as lingering concerns about a fresh spike in coronavirus cases offset growing hopes for a quick economic recovery.

The MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.06 per cent.

Shares in China rose 0.61 per cent, led by gains in financials and the health care sector, but South Korean stocks fell 0.81 per cent due to concern about diplomatic tension with North Korea.

Australia's S&P/ASX 200 jumped 1 per cent, with the energy sector leading the charge, as oil futures rose in Asia on hopes that output cuts will put a floor under prices.

On the whole, markets have been sideswiped this week on fresh contagion concerns, prompting some investors to temper their optimism about how quickly the global economy can recover for the pandemic.

On Thursday around 400 workers at a slaughterhouse in northern Germany tested positive for the virus. At the same time, investors are nervously following a cluster of cases in Beijing and rising cases in several US states.

All three major US stock indexes were range-bound and oscillated as investors struggled to interpret the impact of US employment data without any guidance from corporations on their earnings.

Data on Thursday showed the number of US unemployed remains stubbornly high amid signs of a second wave of corporate layoffs as companies grappled with large declines in revenue because of the coronavirus outbreak.

"The market is looking for its next big impulse," said Chuck Carlson, chief executive of Horizon Investment Services in Indiana.

"There are a lot of impulses in the market for investors to weigh, sift through and take into account to figure out the next direction."

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