Oil gains as hopes rise for production cut amid coronavirus outbreak

FILE PHOTO: An oil pump jack pumps oil in a field near Calgary, Alberta, Canada on July 21, 2014. REUTERS/Todd Korol

TOKYO (Reuters) – Oil rose on Tuesday amid hopes that the world’s biggest producers of crude will agree to curtail production as the coronavirus pandemic ravages the global economy, even as analysts cautioned the cuts may do little to boost demand.

Brent crude LCOc1 was up by 73 cents, or 2.2%, at $33.78 a barrel by 0026 GMT after falling more than 3% on Monday. U.S. crude was up by 97 cents, or 3.7%, at $27.05 a barrel, having dropped nearly 8% in the previous session.

The world’s main oil producers including Saudi Arabia and Russia are likely to agree to cut output at a meeting on Thursday, although that would also depend on the United States doing its share, sources told Reuters.

But the threat of a major recession hangs over the market due to the halt of much economic activity as a result of the coronavirus pandemic, with half the global population under some form of lockdown or social distancing measures.

“Despite the prospect of a massive Saudi Arabian-led production cut, the price of oil has remained low in recent weeks amid a coronavirus-related collapse in demand,” Capital Economics said in a note.

“We expect energy prices to hover around current levels until economic activity recovers,” it said.

Oil prices slumped on Monday after Saudi Arabia and Russia delayed a meeting to agree on output cuts till Thursday. Analysts estimate there is a supply overhang that equates to about a quarter of global consumption before the coronavirus outbreak.

A global recession that economists in a Reuters poll say is under way will likely be more serious than expected a few weeks ago due to the viral outbreak, the latest polling showed.

Reporting by Aaron Sheldrick; Editing by Kenneth Maxwell

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