By Peter Nurse
Investing.com - Oil markets edged higher Friday, as OPEC and its allies began a record output cut. However, the gains are tentative amid worries about the potential of another trade war between China and the U.S. which would impact an oversupplied market.
AT 8:05 AM ET (1205 GMT), U.S. crude futures traded 6.2% higher at $20.02 a barrel, while the international benchmark Brent contract rose 1.8% to $26.96.
The OPEC+ supply cuts agreed upon early in April, of 9.7 million barrels a day, are scheduled to take effect today.
This is expected to halve the imbalance between supply and demand in May, according to Rystad Energy.
"While this may seem like a drastic improvement from April, the oil market is not magically fixed," said Rystad analyst Louise Dickson. "The storage issue still looms large," she said, referring to oil tanks around the world rapidly filling up.
“The output cuts while significant may not be enough to fully offset demand destruction in the global market in the short term,” said analysts at ING, in a research note, “and the inventory build-up could continue for the rest of 2Q20, though at a slower pace.”
Adding to the cautious tone were suggestions by U.S. President Donald Trump of further trade tariffs on China as retaliation for the role he sees Beijing as having played in the coronavirus outbreak.
It was only in January that Trump signed a first phase of a multibillion-dollar trade deal with China, seeking to end what had become a damaging trade war.
Another trade war would likely limit global growth prospects, hitting demand for crude at a time when global demand has slumped in the wake of the lockdown measures put in place to curb the spread of the virus.
Only Thursday, the IEA projected global oil demand would fall by 9 million barrels a day, or about 9%, this year to the lowest level since 2012.
Traders will get some more insight later Friday into how production may be falling in the U.S.
Baker Hughes will issue its oil rig count at 1 PM ET (17:00 GMT). Last week the number of rigs in operation fell to 378 from 438.
In corporate news, Chevron (NYSE:CVX) announced earlier Friday it will cut operating costs by another $1 billion and slashed its planned 2020 capital spending yet again, to as low as $14 billion.
ExxonMobil (NYSE:XOM) followed suit, announcing that it is reducing 2020 capital spending by 30% percent and cash operating expenses by 15%.