Crude oil futures inch higher, but downside risk lingers

Singapore — 0228 GMT: Crude oil futures were marginally higher in mid-morning trade in Asia Tuesday as prices steadied after the OPEC+ deal, but downside risk remains amid COVID-19 developments that could weaken demand further.

At 10:28 am Singapore time (0228 GMT), ICE Brent June crude futures rose 47 cents/b (1.48%) from Monday's settle at $32.21/b, while the NYMEX May light sweet crude contract was 17 cents/b (0.76%) higher at $22.58/b.

"Prices have since stabilized as the supply side of the equation clears. But attention will now turn to demand and the collapse as a result of the coronavirus outbreak," AxiCorp's chief market strategist Stephen Innes said in a note Tuesday.

"That has yet to be quantified and means there are still downside risks to oil despite a big chunk of the extreme supply risk premium priced out of the equation," Innes added.

US President Donald Trump took to Twitter Monday to make the case for doubling the oil supply cuts just approved by OPEC+ to 20 million b/d, saying the move would restore the energy sector faster.

On Sunday, OPEC+ agreed to collectively cut production by 9.7 million b/d in May and June, followed by a 7.7 million b/d reduction in the second half of 2020 and 5.8 million b/d from January 1, 2021, through April 30, 2022.

The deal was aimed at counteracting the plummet in global demand caused by the coronavirus pandemic, even though the cuts are unlikely to be enough to balance markets in the near term.

"Brent prices stayed stable yesterday... despite confirmation on Sunday night that OPEC+ would officially go ahead with the 9.7 million b/d output cuts," OCBC analysts said in a note Tuesday.

"With the next OPEC+ meeting not until June, the main driver of prices in the next two months would likely be COVID-19 developments," the analysts added.

There were close to 2 million confirmed COVID-19 cases worldwide as of Tuesday morning, according to latest available Johns Hopkins University data.