Oil producers from the OPEC+ coalition are discussing the possibility of slashing global crude oil production by 10 million bpd in cooperation with producers from outside the group, a source with OPEC told Reuters on Friday, a day after U.S. President Donald Trump said he expected a massive cut from Saudi Arabia and Russia.
A final figure up for discussion would depend on the outcome of the meeting of President Trump with U.S. oil firms later on Friday and over the weekend, Reuters' source said.
After days of speculation about President Trump getting involved in the Saudi-Russian oil price war that began claiming its first U.S. shale victims, President Trump said on Thursday that he had spoken with the Saudi Crown Prince and Russia, and hoped and expected that Saudi Arabia and Russia would "cut back approximately 10 Million Barrels, and maybe substantially more," sending oil prices soaring by 20 percent.
President Trump later on Thursday in a coronavirus press briefing added that the 10 million bpd figure had actually been discussed in the conversations and that it could be as much as 15 million bpd.
Saudi Arabia called on Thursday for an urgent meeting of the OPEC+ coalition and "another group of countries" to try to find "a fair solution" to the current market imbalance.
The emergency meeting will be held via video conference on Monday, April 6, non-OPEC producer Azerbaijan said on Friday, adding it had been invited to take part in the meeting initiated by Saudi Arabia after talks mediated by President Trump.
However, analysts see many obstacles to a global production cut deal of the magnitude President Trump has touted because of the tall order to get a group of many diverse producers together for a collective cut.
Saudi Arabia is signaling it will discuss cuts if more countries join, including the United States.
The other issue with such a cut is that the current loss of demand is probably more than twice the 10-million-bpd production cut.
After news of the OPEC+ meeting on Monday emerged, oil prices reversed earlier losses that were created by the media's skepticism about a deal, jumping at 7:15 a.m. EDT on Friday, with Brent Crude soaring 8.18 percent at $32.39, and WTI Crude up 4.66 percent at $26.50.
By Tsvetana Paraskova for Oilprice.com
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Comments
To be fair, it could have been a result of either or. But, that makes it a masterful plan. A win-win.
The second is that the world’s three biggest producers Russia, the United States and Saudi Arabia could neither muster between them cuts amounting to 10-15 mbd nor would they be prepared to do so for economic and political reasons.
The third reason is that that Russia will never agree to major cuts. It might only agree to delay plans by Russian oil companies to raise production by 300,000-500,000 barrels a day (b/d).
The fourth is that the US Congress will never agree for the United States to join efforts by what it depicts as a cartel like OPEC+ to stabilize prices. However, shale oil producers may unilaterally implement some on their own.
Therefore, the talk by President Trump about Saudi Arabia and Russia cutting back approximately 15 million barrels between them is a fanciful talk. The truth of the matter is that any agreement on any future cuts without US involvement is a non-starter.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London