By Catherine Ngai and Alex Longley
While it wasn’t clear if Trump meant 10 million barrels a day, the announcement boosted U.S. West Texas Intermediate oil prices by as much as 35% and global benchmark Brent crude by as much as 47%. He also tweeted that the cut could be up to 15 million barrels.
However, Russian President Vladimir Putin hasn’t spoken to the Saudi crown price and hasn’t agreed to cut oil production to boost prices, Kremlin spokesman Dmitry Peskov said in a text message.
The Middle East kingdom also didn’t confirm the cuts, but called for an urgent meeting of the OPEC+ producer alliance to reach a “fair deal” that would restore balance in oil markets, state-run Saudi Press Agency reported. Any curbs by the group would be conditional on other countries joining, according to a delegate.
“The 10, 15 million barrel a day cut is just not going to happen. On top of that, Russia has older oil wells, so they can’t restart in the same way that Saudi Arabia can,” said Tariq Zahir, a fund manager at Tyche Capital Advisors.
He added that there is a chance that the countries might agree to some sort of curb, but if there was a supply reduction of that size, it would come from inventories filling up storage, leading to economic shuts in.
The move comes after oil was already climbing following China’s instruction to government agencies to start buying cheap crude for its strategic reserves.
Despite the U.S. president’s optimism, Saudi Arabia hasn’t appeared to relent on its bid to flood the market yet, saying on Wednesday it was pumping at a record and had this week loaded almost 19 million barrels of oil in a single day. Meanwhile, Russia has said it’s not satisfied with the oil price.
If collective action does remove 10 million barrels a day from the market, that would be the equivalent of about 10% of world demand prior to the impact of coronavirus crisis.
That may not be enough to stop the pain that’s rippled across the energy industry as demand craters with the coronavirus outbreak shutting down economies around the world, according to Ben Luckock, co-head of oil trading at Trafigura. The trading house raised its consumption-loss estimate to around 35 million barrels a day.
“We have no hope of production cuts matching the demand destruction,” he told Bloomberg, adding that by the middle to late April, “oil will have come out of the ground and will struggle to find a home.”
That view is consistent with a Goldman Sachs Group Inc. note earlier this week, citing that any conceivable oil production cut by the U.S., OPEC+ and Canada would still “fall well short” of its estimated 26 million barrels a day of demand loss and only provide “fleeting support to inland crude prices.”
Meanwhile, the physical crude market continues to show deepening signs of strain.
Dated Brent, the benchmark for two-thirds of the world’s physical supply, was assessed at $15.135 on Wednesday, the lowest since at least 1999. Crude has slipped below $10 in some areas including Canada and shale regions in the U.S., Belarus wants to buy Russian oil for $4, while some grades have posted negative prices.
As supply balloons, there are growing signs that the world is running out of places to store the glut.