Trump Raises Hopes of Russia-Saudi Truce
Oil prices spiked on April 2 after US president Donald Trump said he expected Russia and Saudi Arabia to cut their oil output rather than increase it.
Trump tweeted that he had spoken with Saudi crown prince Mohammed bin Salman, who in turn had talked with Russian president Vladimir Putin.
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"I expect & hope that they will be cutting back approximately 10mn barrels, and maybe substantially more which, if it happens, will be GREAT for the oil and gas industry," he tweeted. "...Could be as high as 15mn barrels. Good (GREAT) news for everyone."
Trump said not say whether he was referring to a reduction in daily output or production over a different timeframe. Russia produced 47.76mn mt (11.29mn b/d) of oil and condensate in March, data from its energy ministry shows, while Saudi Arabia reportedly jacked up output to 12mn b/d on April 1.
It is also unclear whether Trump was merely expressing his aspiration, or whether these numbers had been discussed and possibly agreed with Moscow and Riyadh. However, the Kremlin responded saying Putin and the Saudi prince had not spoken recently.
"No, there wasn't such a conversation," spokesman Dmitry Peskov was quoted as saying by Russia's Tass news agency.
Ryan Sitton, the head of the Texas Railroad Commission, which despite its name serves as a regulator for the state's energy industry, later tweeted that he had discussed a 10mn b/d cut with Russian energy minister Alexander Novak.
"Just had a great conversation with Russia's [Novak]. While we normally compete, we agreed that Covid-19 requires unprecedented level of int'l cooperation. Discussed 10mn b/d out of global supply. Look forward to speaking with Saudi prince [and energy minister] Abdulaziz bin Salman soon," he said.
West Texas Intermediate (WTI) futures soared 24.7% to $25.32/b on April 2, marking its biggest single-day percentage growth on record. Brent surged 17.8%, arriving at $29.14/b. WTI was down 4.6% on April 3 as of press time at $24.15, while Brent had fallen 4.6% to $28.56.
Russia, Saudi Arabia and other Opec+ members announced plans to ramp up production several weeks ago after failing to agree on extended and deepened cuts, causing oil prices to plummet. Their previously agreed output restrictions expired on April 1, meaning they are free to pump as much as they want.
Trump initially welcomed the oil price crash, saying it would be good for US fuel consumers. He soon shifted his position because of the impact low prices were having on the US shale industry. The downturn has just claimed its first US victim , Denver-based shale producer Whiting Petroleum, which filed for bankruptcy on April 1.
Reducing their combined daily output by 10-15mn bpd would be unthinkable for Russia and Saudi Arabia, for many reasons. One is the huge loss in market share that this would entail. It is possible, though, that Trump was expecting other producers to contribute to this cut as well.
Even if such a large amount of supply was taken off the market, it would still not make up for the expected loss in demand as a result of Covid-19 lockdowns. Oslo-based Rystad Energy expects efforts to combat the pandemic to reduce global oil consumption by 16mn b/d this month.