[Good Morning Stock Market] "OPEC+ Production Cut Agreement... Domestic Stock Market Expected to Change According to International Oil Price Trends"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Eunmo Koo] OPEC+ (the Organization of the Petroleum Exporting Countries, OPEC, and an alliance of 10 major oil-producing countries) held an emergency video conference on the 9th and agreed to cut oil production by 10 million barrels per day for two months from May 1 to June 30 compared to the current level. On the 10th, the domestic stock market is expected to show changes depending on the trend of international oil prices.

◆Sangyoung Seo, Kiwoom Securities Researcher=The U.S. stock market closed by giving up some of its gains as international oil prices turned downward despite the Federal Reserve (Fed) announcing unprecedented strong measures. Notably, ahead of the market closure on Friday, profit-taking selling emerged in technology stocks, including semiconductors, which had driven the recent rise. In particular, the volatility increased as international oil prices surged by up to 12% at one point but eventually fell by 9%, which is expected to have a negative impact on the Korean stock market.

Meanwhile, the U.S. stock market gave up its gains in the afternoon, using the sharp drop in international oil prices as an excuse. Especially, semiconductors, which had led the rise, plunged, and large technology stocks showed sluggishness. This is also expected to burden the Korean stock market. Furthermore, there is an analysis that the recent rise in semiconductor chip prices was due to buyers accumulating inventory amid concerns about supply chain disruptions, raising concerns about a sharp drop in demand in the second quarter. The Philadelphia Semiconductor Index’s 2.33% decline is a burden.

Additionally, the possibility that the global economic reopening might be delayed despite expectations of a peak in COVID-19 cases is also expected to negatively affect investor sentiment. Considering this, the Korean stock market is expected to start lower and then show changes depending on the trend of international oil prices following the OPEC+ meeting results.

◆Byungjin Hwang, NH Investment & Securities Researcher=OPEC member countries and allies including Russia held an emergency video conference. In this meeting, Russia and Saudi Arabia agreed in principle to cut daily oil production by 2 million barrels and 4 million barrels respectively, totaling a 10 million barrel cut. Although detailed plans have not yet been disclosed, Iran’s Oil Minister explained that “OPEC+ oil-producing countries will reduce the cutback to about 8 million barrels in the second half of the year and 6 million barrels in 2021 after the 10 million barrel cut in May and June.”

Oil prices surged sharply until before the meeting but reversed to a decline. The agreed cutback scale fell short of the initially discussed 15 to 20 million barrels, and it is widely evaluated as insufficient to offset the approximately 30 million barrel drop in oil demand caused by COVID-19. West Texas Intermediate (WTI) crude oil prices recorded $28.36 per barrel (May delivery) intraday but fell back to close at $22.76 (daily -9.29%).

NH Investment & Securities also agrees with the assessment that “the OPEC+ agreement on the previous day is unlikely to immediately resolve concerns about oversupply.” On the other hand, it judges that “it has at least created an opportunity to ease supply uncertainty in the oil market, which has been troubled by coexistence of demand and supply uncertainties.” It also expects that “once the OPEC+ production cuts are implemented from May, the oil market’s focus will shift to whether demand improves depending on the development of COVID-19.” Going forward, WTI prices are expected to aim for an upper range of $40 in the second half of the year, based on strengthened downside support around $20 per barrel.

Meanwhile, on the 10th, an emergency video conference of G20 energy ministers is scheduled. While the G20 executive body emphasized “global dialogue and cooperation for a stable energy market and a stronger global economy,” it will be an opportunity to hear about the supply policies of oil-producing countries such as the U.S. and Canada, which did not participate in the previous day’s OPEC+ video conference. Also, among G20 countries, oil-importing countries like Korea are expected to announce plans to improve oil market demand through strategic oil reserve purchases.

This content was produced with the assistance of AI translation services.