Oil prices rise as cuts calm storage fears

Norway to cut production by 10% as demand shrinks by a third

Oil prices extended gains on Thursday with US crude rising more than 10 per cent, as traders bet efforts to combat the biggest demand crash in history were starting to have an effect.

Norway, the largest oil producer in western Europe, will cut oil production by more than 10 per cent in June while production declines in North America have gathered pace, helping to soothe fears storage capacity globally could soon be overwhelmed.


Global oil demand has shrunk by as much as a third during lockdowns and travel restrictions designed to restrict the spread of coronavirus, sending oil prices down more than 70 per cent since January and filling up storage facilities and supertankers with unwanted oil around the globe.

But while traders said the industry was not yet in the clear, rising production cuts and shut-ins have bolstered hopes supply and demand will soon come closer into balance.


“We are at an inflection point where we’ve seen the worst in terms of demand destruction but not the worst in terms of supply destruction, and that is what traders are looking ahead to,” said Petromatrix analyst Olivier Jakob.

US crude oil benchmark West Texas Intermediate gained as much as 18 per cent to hit a high of $17.75 (€16.37 ) a barrel, before easing slightly. The WTI contract for June delivery has risen more than $5 in the past two sessions. Last week the expiring May contract crashed into negative prices for the first time, sending shockwaves through the industry and forcing deeper production cuts.

Brent, the international benchmark, gained 10 per cent to hit a high of $25 a barrel, having fallen below $20 last week. Prices are still very weak, however, having traded close to $70 a barrel in early January.


Royal Dutch Shell, Europe's largest oil company, on Thursday announced a cut to its shareholder dividend for the first time since the second world war, in a sign of the extreme stress hitting the industry. Its shares fell 6 per cent in early trading in London.

The International Energy Agency said it had seen a “staggering” decline in energy demand in 2020, with oil demand expected to fall by an average 9.3 million barrels a day (b/d) this year compared with the 100 million b/d consumed in 2019.

Global stock markets were stable, following sharp overnight gains as positive results from the trial of a possible coronavirus treatment reinforced investor optimism.

Investors were happy to brush off more woeful economic data, as figures released on Thursday showed that the French and Spanish economies shrank by the fastest rate on record in the first quarter.

European markets were largely flat in subdued morning trading, with the regional benchmark Stoxx 600 index down less than 0.1 per cent.

Overnight, Wall Street's S&P 500 rallied 2.7 per cent after Gilead Sciences, the California-based biotechnology company, said that its potential Covid-19 drug remdesivir had produced positive results in a US study. The findings were tentatively endorsed by Anthony Fauci, the US government's leading infectious disease fighter.


Still, stocks have whipsawed in recent weeks based on the findings of trials of possible coronavirus treatments, and some analysts urged caution.

The burst of investor optimism caps a month that has seen traders disregard historically poor economic data and tremors in the oil markets, boosted by global stimulus that the IMF puts at $14 trillion.

The MSCI All-World index, a broad measure of developed and emerging market shares, is up 11.7 per cent in April and on course for its best month since records began in the late 1980s.

Futures markets pointed to a higher open on Wall Street, with futures tied to the S&P 500 up 0.1 per cent.

Jim Reid, a strategist at Deutsche Bank, noted that the US benchmark index is now 30 per cent above its March lows, "an astonishing rise in such a short space of time given the circumstances".

In upbeat Asian trading, China's CSI 300 of Shanghai- and Shenzhen-listed stocks rose 1.2 per cent, while Japan's benchmark Topix index climbed 1.6 per cent and Australia's S&P/ASX 200 gained 2.7 per cent. Hong Kong's market is closed for a holiday.

Strength in China’s equity markets on Thursday came as data showed the recovery in the country’s services sector in April was stronger than expected. But the non-manufacturing purchasing managers’ index also revealed that demand for Chinese products abroad had continued to shrink as the coronavirus hit other parts of the global economy. – Copyright The Financial Times Limited 2020