President Donald Trump expects Russian President Vladimir Putin and Crown Prince of Saudi Arabia Mohammed Bin Salman to announce a deal on an oil production cut, the president said to CNBC.
The president is expecting a cut of 10 million barrels, although the cut could be as high as 15 million barrels.
U.S. West Texas Intermediate crude surged more than 30% to a session high of $27.39 per barrel, putting it on track for its best day on record. International benchmark Brent jumped 24%.
The president later said in a tweet that a production cut would be “great for the oil & gas industry!” and that the cut could be “substantially more” than 10 million barrels.
The details of the production cut remain unclear, and RBC’s Helima Croft noted that the U.S. could have to give up something in return.
“What we know is the Saudis were looking at this through the lens of the financial crisis and believe they needed a response commensurate to 08/09,” she said.
“The question is can Trump put together the package that gets them to do that?,” Croft said. “We know there’s an emergency OPEC meeting. They will be looking for signs that U.S. production will be curtailed. They will be watching what happens with the Texas Railroad Commission and with Canada,” she said.
Oil production is typically discussed in terms of barrels per day, although president Trump’s comments made no reference to the timeframe of the cuts. Additionally, it was not clear how the cuts would be distributed across oil-producing countries.
On Thursday, Saudi Arabia, via their official press agency, called for an “urgent” meeting between OPEC and its allies.
“It’s obviously welcome. It will be very welcomed by the industry in the short run. As long as the coronavirus continues, there’s just a substantial amount of excess capacity being generated every day,” Dallas Fed President Robert Kaplan said to CNBC.
“This will be extremely helpful. It will be particularly helpful as we come out of this virus and will speed the time hopefully where the supply-demand for oil can get back into balance. But we’re a long, long way from that, and people have warned that even with a substantial move from Saudi Arabia and Russia that we’re going to spend a substantial amount of time working off a high level of oversupply,” he added.
Despite Thursday’s jump, WTI is still down more than 40% over the last month as oil prices have been hit on both the demand and supply side.
Demand has evaporated as the coronavirus outbreak has halted travel worldwide and slowed business activity, just as a price war broke out between powerhouse producers Saudi Arabia and Russia.
In March OPEC de facto leader Saudi Arabia recommended cutting production by 1.5 million barrels per day as the pandemic slowed demand. But OPEC ally Russia rejected the proposal, sparking the price war between the two countries.
On Wednesday Saudi Arabia ramped up its production to a record high of more than 12 million barrels per day, after the OPEC+ production cuts that were previously in place expired at the end of March.
As oil prices cratered — WTI is coming off its worst month and quarter in history — the U.S. sought to intervene, with president Trump speaking to his counterparts in Russia and Saudi Arabia.
U.S. producers have been among the hardest hit as companies struggle to breakeven with depressed oil prices. On Wednesday, Whiting Petroleum became the first major U.S. shale producer to declare bankruptcy.
On Friday, executives from at least seven U.S. energy giants including Exxon and Chevron will meet with Trump at the White House to discuss energy policy.
Before Trump’s comments to CNBC, oil had been up around 10% after the White House had signaled optimism over a possible deal. Crude also got a boost after Bloomberg News reported — citing people with knowledge of the matter — that China will start buying oil for its emergency reserves.
“This is of course very substantial developments even in view of the massive oversupply of 25 mmbbld that the market is currently facing,” Rystad Energy’s Magnus Nysveen said. “Removing 10 mmbbld from the supply side within weeks will contribute to balancing the market at a much more healthy level before the world runs out of crude storage capacity. Running out of storage capacity would result in a complete collapse of the oil market which is crucial for the world economy now suffering from the greatest economic shock since WW1.”
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