Oil futures skyrocketed on Thursday after US President Donald Trump claimed Saudi Arabia was willing to end its oil price war by removing 10 million barrels per day from the market.
International benchmark Brent initially soared by 25% before paring gains to trade 19% higher at about $29.40 per barrel late in the London session, while US West Texas Intermediate (WTI) was fetching about $25 per barrel, up by 23% in early New York trade.
Trump said he had spoken with Russian President Vladimir Putin and Saudi Crown Prince Mohamed bin Salman, known as MbS, and expects them to announce an oil production cut of 10 million barrels — and it could even be as high as 15 million.
The president later tweeted: "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!"
However, despite Trump's optimism, the evidence is mounting that Saudi Arabia aims to flood the market by pumping at capacity as it ratchets up the price war, offering heavily discounted crude and lining up additional supertankers to add to a growing global glut.
Saudi Aramco, the world’s largest oil company, has asked oil services companies to help it boost its maximum capacity of 12 million barrels per day.
Market experts were quick to point out that even if the Saudis and Russians agreed to the kind of drastic output curbs mentioned by Trump, the impact on a glutted market could be limited because of the scale of the demand destruction caused by the coronavirus outbreak.
Supplies have been rising amid worldwide lock-downs that have paralysed all economic and social activities.
“The challenge though is the size of the oversupply problem. Saudi Arabia and Russia won’t single-handedly remove for instance half (5 million bpd) of their [country’s] oil production to save the potential 10 million to 12 million bpd of upstream shut-ins required to balance the market in the second quarter,” Rystad Energy’s head of oil markets, Bjornar Tonhaugen, said.
“At best, we believe parties will agree to continue discussing and monitor the market situation."
As part of US efforts to help the battered oil industry, Trump said he had invited American oil executives to the White House to discuss ways to help the industry “ravaged” by the Covid-19 outbreak and the battle over market share between Moscow and Riyadh, which followed the failure of talks in early March to extend their output restraint pact.
'Bad for Russia, bad for Saudi Arabia'
“I’m going to meet with the oil producers on Friday. I’m going to meet with independent oil producers also on Friday or Saturday. Maybe Sunday. We’re going to have a lot of meetings on it,” Trump told reporters at a media conference.
Worldwide, the oil industry has been ravaged,” he said. “Its very bad for Russia, its very bad for Saudi Arabia. I mean, its very bad for both. I think they’re going to make a deal.”
At the same time, the US Energy Department called on Saudi Arabia and Russia to call off their price war.
“Boosting production during this time of an unprecedented loss in global demand is frustrating, and does not represent the kind of deliberative planning we would like to see from partners, and does not advance our shared interest in stable markets,” said Energy Department spokeswoman Shaylyn Hynes.
She said Energy Secretary Dan Brouillette is talking with his counterparts in major oil-producing nations to try to stabilize the markets.
International benchmark Brent has fallen from a peak of $70 per barrel in early January amid rising supplies and collapsing demand triggered by the coronavirus outbreak.