Oil futures rebounded strongly from earlier losses in Asia on Friday, with international benchmark Brent futures rising above $30 per barrel in early London trading as investors took heart from preparations by producers to take collective output restraint measures to help shore up prices amid collapsing demand.
Buying momentum continued for a second day after US President Donald Trump on Thursday had tweeted that heavyweights Saudi Arabia and Russia had agreed to drastic curbs of 10 million barrels per day — and potentially up to 15 million bpd — catapulting US crude to its biggest one-day rally on record.
Emergency Opec meeting
Following Trump’s remarks, Saudi Arabia called for an emergency meeting of Opec and non-Opec allies as part of efforts to bring order to the oil market, which has been battered by rising production and cratering demand in the wake of the Covid-19 outbreak.
Non-Opec producer Azerbaijan said the Opec+ meeting is scheduled for 6 April via a video conference.
Brent futures were trading up about 6% at around $31.70 per barrel in mid-morning London trading on Friday, while US West Texas Intermediate (WTI) changing hands at around $26 per barrel.
Both benchmarks had suffered heavy losses in Asia trading amid doubts about Trump's tweet.
Oil analysts cautioned about premature optimism raised by Trump and preparations for the meeting of Opec and non-allied members, pointing to bulging global inventories and the worldwide economic meltdown caused by the pandemic.
'Shooting from the hip'
Bjornar Tonhaugen, head of oil markets at Norwegian consultancy Rystad Energy, said: "President Trump might have been shooting from the hip when he tweeted about oil yesterday, promoting the idea of a deal too early on negotiations of high complexity that need more time to blossom.
"Donald Trump seems to have two conflicting benefits in mind when it comes to oil. But as with all things in life, you can’t have it both ways — high oil prices favouring the oil industry, but also low prices serving as tax cuts for consumers in the US, especially the 10 million Americans who have just lost their jobs in the past two weeks due to Covid-19.
"The question for the oil market right now is whether we will have 10 million bpd of voluntary production cuts in the second quarter or forced production cuts. That could be due to full supply chains of oil, where shut-ins are forced as there will be nowhere to physically put the oil after it leaves the ground."
Other experts said hopes of collective output cuts had for the time being eased some pressure on a massively oversupplied market but warned that a speedy agreement may be difficult to pull off amid the market mayhem.
'Extraordinary state of oversupply'
Callum Macpherson, Investec’s head of commodities, said: “Behind Trump’s rather brief tweet, there does appear to finally be collective acceptance that the market is in such an extraordinary state of oversupply that coordinated action is needed.
"However, given how difficult it is for Opec+ to agree on a position, how they will manage to successfully co-ordinate with the US and other countries — particularly in view of the massive uncertainty over the current extent and future path of the disruption to demand — remains to be seen.
"For now, the possibility of 'something' happening could make short sellers more wary and help to limit downward pressure on oil prices, but there may need to be more tangible signs of progress fairly soon if a retest of recent lows is to be avoided before long.”