Good morning—this is Fortune finance reporter Rey Mashayekhi, filling in today for Bernhard Warner.
I hope you had a comfortable holiday weekend, considering the circumstances. Here in Los Angeles, the smog has (mostly) lifted and the traffic is (relatively) nonexistent—but we would surely sacrifice all of that in exchange for a return to normalcy.
While the European markets may be closed on Monday for Easter, the U.S. exchanges and most of the major Asian markets (sans Hong Kong) are open for business. And they’ll start the week with good news from a crude oil market that’s been hammered in recent weeks.
The big news coming out of the weekend is a multinational oil production deal that will hopefully put to rest the price war that has been raging for over a month. Saudi Arabia-led OPEC has struck an agreement with Russia, Mexico, and other countries—a group collectively known as OPEC+—to cut production by an unprecedented 9.7 million barrels per day starting May.
While not a member of OPEC+, the U.S. reportedly played a major role in hashing out differences between Saudi Arabia and Mexico during negotiations. With Mexico reluctant to slash production by more than 100,000 barrels per day, the U.S. stepped in and agreed to cut its own output by 300,000 barrels per day, putting an end to the impasse.
The deal should resolve the Saudi-Russian price war that, in concert with the coronavirus pandemic, has sparked a historic selloff in crude oil prices. The two nations had been unable to get on the same page on production cuts in the wake of the outbreak.
Instead, they each pledged to flood the market with product despite dwindling demand. As a result, the two benchmark crude oil prices, Brent and West Texas Intermediate (WTI), have plummeted roughly 50% and 60%, respectively, since the start of the year.
As one would expect, crude oil prices initially surged on Sunday evening on the news of the deal—only to give back most of those gains by Monday morning.
That could point to reservations over the agreement’s ability to lift depressed oil prices. Despite being the single largest production cut in history, it still might not curb supply to the point of matching free-falling global demand—with oil prices likely staying well below their recent peaks as a result.
Doubts over the deal could explain the tepid response coming out of the equities markets. U.S. stock futures were down more than 1% on Monday morning, indicating that the market in New York will drop at the opening bell.
Likewise, in Asia, all of the major indices started the week with declines. In Tokyo, the Nikkei lost more than 2% on Monday, while on mainland China, the markets in Shanghai and Shenzhen gave up less than 1%. In Seoul, the KOSPI was down nearly 2%.
But at the very least, the oil production pact should provide the markets—not to mention the myriad companies and financial institutions that have exposure to energy prices—with a sorely needed modicum of certainty during these tumultuous times. Of course, we’ll see just how long that certainty lasts.
That’s all from me today; Bernhard will be back tomorrow. Have a pleasant Monday.
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