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Morning Note: Traders Nervous as Oil Signals Stability

Stocks across Asia-Pacific fell after a potential antiviral drug to treat coronavirus flopped in its first clinical trial, dashing investors’ hopes for a medical solution to the pandemic.

In early trading on Friday, Japan’s benchmark Topix index fell 0.8 per cent while South Korea’s Kospi index slipped 0.5 per cent. Hong Kong’s Hang Seng fell 0.6 per cent and China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks 0.2 per cent even after the country’s central bank trimmed one of its key policy rates.

After a dramatic week that saw prices plunge below zero for the first time in history, oil continued to claw back losses as attention turned to output cuts in response to the demand hit from coronavirus lockdowns.

New York futures for June delivery rose for a fourth day to above $17 a barrel after the May contract fell as low as -$40.32 on Monday before expiring the next day. U.S. operators have already started to shut in old wells and halt new drilling, actions that could reduce output by 20%, while Kuwait and Algeria said they are reducing production earlier than required to under the OPEC+ deal.

The massive glut won’t be cleared quickly, however, meaning West Texas Intermediate and global benchmark Brent crude are still at risk of further declines. In a sign of how severe the supply imbalance is, refiners are hunting for vessels to store gasoline and jet fuel, while an American pipeline operator is looking at ways to free up space on its conduits to store more crude.

In stocks, the S&P 500 ended marginally lower on Thursday after a report that an experimental antiviral drug for the coronavirus flopped in its first randomized clinical trial, denting optimism that the pandemic’s impact on the labor market was nearing an end.

All three main U.S. stock indexes fell back from gains of over 1% after the Financial Times reported that a Chinese trial showed that Gilead Science’s (GILD.O) remdesivir did not improve patients’ condition or reduce the pathogen’s presence in the bloodstream. The Dow Jones Industrial Average rose 0.17% to end at 23,515.26 points, while the S&P 500 lost 0.05% to finish at 2,797.8. The Nasdaq Composite slipped 0.01% to 8,494.75.