Oil rallies as top producers agree massive output cuts

Top oil producers Sunday agreed to slash output and shore up coronavirus-ravaged energy markets.

SINGAPORE (AFP) - Oil prices rallied Monday after top producers agreed to slash output and shore up coronavirus-ravaged energy markets, but some analysts were concerned the cuts did not go far enough.

US benchmark West Texas Intermediate was up 7.7 percent at $24.52 a barrel in Asian trade while Brent crude, the international benchmark, put on 5.0 percent to $33.08 a barrel.

OPEC producers dominated by Saudi Arabia and allies led by Russia met via videoconference for an hour Sunday in a last effort to cement a deal struck early Friday.

It still required Mexico s agreement and in a compromise reached Sunday they agreed to a cut of 9.7 million barrels per day from May, according to its Energy Minister Rocio Nahle, down slightly from 10 million barrels per day envisioned earlier.

OPEC Secretary General Mohammad Barkindo called the cuts "historic".

Oil markets have been in turmoil for weeks as lockdowns and travel restrictions imposed worldwide to combat the virus outbreak strangle demand, with a price war between Russia and Saudi Arabia compounding the crisis.

While Monday s price rises were healthy, they were not as strong as the double-digit jumps and falls of recent weeks in a highly volatile market, and analysts were sceptical the deal went far enough.

The amount being cut was slightly lower than had been expected, and observers said it would not make up for expected demand loss due to the virus outbreak. Some analysts are putting this at about 25 million barrels per day in April.

In addition, storage tanks worldwide are rapidly filling up.

"The deal is a little less than the market expected given that Mexico has gotten off easy," 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 that "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".