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Oil soared after President Trump said that he expects Saudi Arabia and Russia to cut output back by 10 million barrels or more after he spoke with Crown Prince Mohammed Bin Salman.
While it wasn’t clear if Trump meant 10 million barrels a day, the announcement boosted U.S. West Texas Intermediate oil prices by as much as 35% and global benchmark Brent crude by as much as 47%. He also tweeted that the cut could be up to 15 million barrels.
However, Russian President Vladimir Putin hasn’t spoken to the Saudi crown price and hasn’t agreed to cut oil production to boost prices, Kremlin spokesman Dmitry Peskov said in a text message.
The Middle East kingdom also didn’t confirm the cuts, but called for an urgent meeting of the OPEC+ producer alliance to reach a “fair deal” that would restore balance in oil markets, state-run Saudi Press Agency reported. Any curbs by the group would be conditional on other countries joining, according to a delegate.
Just spoke to my friend MBS (Crown Prince) of Saudi Arabia, who spoke with President Putin of Russia, & I expect & hope that they will be cutting back approximately 10 Million Barrels, and maybe substantially more which, if it happens, will be GREAT for the oil & gas industry!— Donald J. Trump (@realDonaldTrump) April 2, 2020
.....Could be as high as 15 Million Barrels. Good (GREAT) news for everyone!— Donald J. Trump (@realDonaldTrump) April 2, 2020
“The 10, 15 million barrel a day cut is just not going to happen. On top of that, Russia has older oil wells, so they can’t restart in the same way that Saudi Arabia can,” said Tariq Zahir, a fund manager at Tyche Capital Advisors.
He added that there is a chance that the countries might agree to some sort of curb, but if there was a supply reduction of that size, it would come from inventories filling up storage.
The move comes after oil was already climbing following China’s instruction to government agencies to start buying cheap crude for its strategic reserves.
Despite the U.S. president’s optimism, Saudi Arabia hasn’t appeared to relent on its bid to flood the market yet, saying on April 1 it was pumping at a record and had this week loaded almost 19 million barrels of oil in a single day. Meanwhile, Russia has said it’s not satisfied with the oil price.
If collective action does remove 10 million barrels a day from the market, that would be the equivalent of about 10% of world demand prior to the impact of the coronavirus crisis.
That may not be enough to stop the pain that’s rippled across the energy industry as demand craters with the coronavirus outbreak shutting down economies around the world, according to Ben Luckock, co-head of oil trading at Trafigura. The trading house raised its consumption-loss estimate to around 35 million barrels a day.
“We have no hope of production cuts matching the demand destruction,” he told Bloomberg, adding that by the middle to late April, “oil will have come out of the ground and will struggle to find a home.”
That view is consistent with a Goldman Sachs Group Inc. note earlier this week, citing that any conceivable oil production cut by the U.S., OPEC+ and Canada would still “fall well short” of its estimated 26 million barrels a day of demand loss and only provide “fleeting support to inland crude prices.”
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