Oil prices spiked on Thursday morning after U.S. President Donald Trump said that he spoke with the Saudi Crown Prince, 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.
"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!" President Trump tweeted on Thursday.
Oil prices soared immediately after the tweet, with WTI Crude soaring 25.90 percent at $25.51 as of 11:04 a.m. EDT and Brent Crude surging 20.57 percent at $29.83.
According to the Saudi's official news agency, SPA, Saudi Arabia is calling for an urgent meeting for OPEC+ states "and another group of countries".
Making no mention of specific numbers.
The press agency later went on to make mention of the relationship with the United States.
Earlier today, prices were already gaining more than 8 percent after the market began to tentatively hope that former allies Russia and Saudi Arabia could re-launch talks on propping up oil prices, which are too low for both of those economies, regardless of their claims of 'resilience' even at these prices. Related: $1 Oil: Saudi Arabia's Attempt To Crush U.S. Shale
After weeks of 'no-backing-down' in the oil price war, the former allies Saudi Arabia and Russia have started hinting at readiness to re-launch cooperation to save oil prices from sliding further amid the massive demand loss in the coronavirus pandemic.
"Saudi Arabia has always welcomed and supported cooperation among oil producers in their efforts to stabilize the oil market during the current crisis, based on the principles of fairness and equity," a Gulf source familiar with Saudi Arabia's thinking told Reuters on Thursday but said that the OPEC+ break-up was Russia's fault.
Russia, for its part, has decided it's economically unfeasible for its producers to boost oil production right now, so Moscow called off an earlier promise to also increase supply, albeit at a much lower rate than Saudi Arabia.
With U.S. shale producers suffering the first immediate blow from the Saudi-Russian oil price war, U.S. President Trump discussed the situation on the oil market with Russia's President Vladimir Putin earlier this week and said he held a separate phone call with Saudi Arabia's Crown Prince Mohammed bin Salman.
By Tsvetana Paraskova for Oilprice.com
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Comments
Saudi Arabia knew that its oil price war will eventually backfire on it. How could a price war work in a global oil market that has reportedly lost more than 20 million barrels a day (mbd) because of the outbreak and is sagging under the weight of a glut estimated by some accounts to have risen to 1.8 billion barrels.
Saudi Arabia used the call by President Trump as a way out of a so-called price war which it couldn’t win against Russia anyway.
Russia will continue to maintain its stand that any new deep cuts by OPEC+ will not have any positive impact on oil prices while the coronavirus outbreak is raging. It may, however, accept an extension of the previous OPEC+ production cut agreement that expired on the 1st of April until the end of the year, something it was prepared to do before it was confronted by a Saudi demand for 1.5 million barrels a day (mbd) cuts.
Therefore, talking about Saudi Arabia and Russia cutting back approximately 10 Million Barrels without the US also cutting its shale oil production substantially is a fanciful talk. It will never happen.
As for the sudden rise in oil prices, it won’t last whilst the outbreak is raging. The rise was just an instinctive reaction to a bit of good news by a market which has been bereft of good news since the onset of the outbreak. Still, there is nothing wrong with allowing the market a moment of pleasant dreams even if only for a short time.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London