Production cut will sustain oil, boost stocks, analysts say

The agreement to cut production between the world’s oil producers may support stocks to recover losses. However, lockdowns and other restrictions remain pressing to the global economy.

OPEC and its allies including Russia agreed to slash oil production by 10% of global supply to sustain oil prices amid the crisis. However, sources close to the matter said that the output cuts could go up to 20%.

S&P futures fell on Sunday evening, while U.S. crude futures and Brent opened Monday’s session with gains.

The production cut could sustain oil prices for the long term and boost stocks, analysts said.

Rick Meckler, a partner at Cherry Lane Investments in New Jersey said that the market will see it as a stabilization of the economy, lifted by fiscal and monetary policies.

Oil prices have plunged in recent weeks due to demand concerns amid the pandemic. 

U.S. crude closed on Friday at $22.76%, after falling 62.7% year-to-date. S&P 500’s energy sector plunged 43% this year.

Analysts believe that a rally in oil or stocks will remain limited by the lockdowns and weak economic activity due to the coronavirus pandemic.

Senior market analyst Edward Moya of Oanda in New York said that the deal would help sustain oil prices, despite skepticism about its effectiveness in holding out long-term.