Chinese markets. Picture: AFP/FRED DUFOUR
Chinese markets. Picture: AFP/FRED DUFOUR

Tokyo/New York — Oil prices retreated on Friday after huge gains, while stocks in Asia edged down, as doubts grew over an oil price deal between Saudi Arabia and Russia that US President Donald Trump said he had brokered.

With the coronavirus pandemic raising the risk of a prolonged global downturn, investors continued to seek the safety of the US dollar and government bonds, pushing US Treasuries yield near their lowest in three weeks.

US West Texas Intermediate (WTI) crude lost $1.14, or 4.5%, to $24.18 a barrel in early Asian trade after having surged a record 24.7% on Thursday. Brent futures dropped $0.70, or 2.67%, to $29.24.

Trump said on Thursday he had spoken to Saudi Crown Prince Mohammed bin Salman, and expects Saudi Arabia and Russia to cut oil output by as much as 10-million to 15-million barrels, as the two countries signalled willingness to make a deal.

Saudi Arabia said it would call an emergency meeting of the Organization of the Petroleum Exporting Countries (Opec), Saudi state media reported.

The amount Trump talked about would represent an unprecedented cut amounting to 10% to 15% of global supply, if he meant output per day — a common unit of measurement.

But Trump did not specify and some analysts say the omission may be intentional.

“He is a business man and smart enough to know these things. A cut of 10 to 15 million barrel per day [bpd] would be simply impossible,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

“How could Riyadh and Moscow agree on such a big cut, just about a month after they had fought over a cut of 1.5-million.”

In early March, talks over production cuts between the two countries collapsed, leading them to start a price war that pushed oil prices to the lowest levels in nearly two decades.

Nor did Trump make any offer to reduce US production, now the world’s largest.

“Both Riyadh and Moscow will also be looking for participation from US producers, and this may prove now to be the biggest obstacle to an agreement,” Royal Bank of Canada analysts said in a note.

As oil prices retreated, E-Mini futures for the S&P 500 also fell 0.78% in Asia.

MSCI’s Asia-Pacific index outside Japan dipped 0.15% while Japan’s Nikkei rose 0.3%, helped by overnight gains in Wall Street shares. On Thursday, the S&P 500 gained 2.3%.

Safe assets in demand

Investors sought the perceived safety of government bonds. Benchmark US 10-year notes fell in price to last yield 0.593%, near a three-week low of 0.563% touched on Thursday.

More evidence of the damage from widespread stay-at-home orders to contain the spread of coronavirus emerged in the US, with an unprecedented number of workers — 6.6-million — filing jobless claims.

Projections released by the US Congressional Budget Office showed US GDP will decline by more than 7% in the second quarter as the health crisis takes hold.

Global coronavirus cases surpassed 1-million with more than 52,000 deaths as the pandemic further exploded in the US and the death toll climbed in Spain and Italy, according to a Reuters tally.

Highly rated US corporate bond issuers raised a record $110.502bn this week, according to Refinitiv IFR data, as firms borrowed cash in fear the coronavirus crisis may soon limit their access to capital markets.

In the currency market, the dollar maintained its firmness against a basket of currencies as investors and companies continued to hoard the world’s most liquid currency.

The dollar index has risen 1.88% so far this week, even as extreme tightness for dollars in some markets since March has eased.

The euro steadied at $1.0853 after four straight days of losses. The yen also stepped back to 107.95/$ from Wednesday’s two-week high of 106.925/$.

Gold prices rose overnight as US jobless claims hit a new peak, intensifying fears of the coming economic slowdown and drove investors towards the safe-haven metal.

Spot gold traded at $1,613.5/oz after a 1.28% rise on Thursday.

Reuters

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