Oil soared nearly 50 per cent in its biggest ever one-day rally after US President Donald Trump stoked hopes of a supply cut deal led by Saudi Arabia and Russia to alleviate a price collapse triggered by the coronavirus outbreak.
Mr Trump on Thursday said Crown Prince Mohammed bin Salman of Saudi Arabia and Russian President Vladimir Putin had begun talks on how to curb production by as much as 15m barrels a day — a large chunk of the world’s oil demand, which stood at 100m b/d last year.
“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!” he said. “Could be as high as 15 Million Barrels. Good (GREAT) news for everyone!”
Almost immediately after Mr Trump’s tweet, Saudi Arabia’s state news agency said the kingdom was calling for an emergency meeting of Opec and other oil producer nations, including Russia. It said it sought to reach a “fair” supply deal, without committing to any cuts.
However, the Kremlin rejected Mr Trump’s remarks. “There was no conversation” between Mr Putin and Prince Mohammed, Dmitry Peskov, Mr Putin’s spokesman said, adding that none was planned.
“So far, no one has started talking about any specific or even abstract deals in exchange for Opec+,” he said, referring to the three-year oil alliance between Opec and Russia that collapsed last month.
One Opec official said the tweet from the US president amounted to “Trump talking before his brain engages”.
On Wednesday Mr Trump said he believed a deal to end a price war — which has taken Brent to its lowest level since 2002 — was imminent, sparking a rally in crude prices.
Brent crude, the international oil benchmark, rose as high as $36.29 a barrel after Mr Trump’s tweet, a record intraday jump in percentage terms amounting to nearly 47 per cent. It later retreated to $29.40 a barrel — an 18 per cent increase.
People close to the kingdom say the world’s biggest oil exporter still wants a deal on supply cuts, but any curbs would need to be shared between all major producers. Saudi Arabia, Russia and the US together account for around a third of global oil production.
Helima Croft at RBC Capital Markets said: “There is a realisation in Washington that the path to a deal runs through Moscow. Everyone knows that Saudi Arabia wants Russia at the table but there is also a recognition that the US will have to participate in some way. But there are clear questions about what the US’s involvement will look like.”
Riyadh had pushed for a deal to deepen and prolong production curbs ahead of a March meeting of oil ministers, but it was met with reluctance from Moscow. This prompted Saudi Arabia to pursue a “pump at will” strategy to shock the market, dramatically cutting prices for its crude and raising production to a record 12m barrels a day.
The flood of supplies are set to hit the market as the global oil industry faces its biggest consumption hit in history, with the coronavirus pandemic forcing lockdowns and travel bans. Traders are forecasting that crude demand could fall by as much as 30m b/d in April.
Some market analysts have said the demand collapse is so severe that any supply cuts from major producers would have a limited impact. Global storage tanks are already filling up and producer companies could be forced to shut-in oil projects.
The US has put pressure on Saudi Arabia to scale back its supply surge, which has contributed to a price collapse and ricocheted across the shale industry, where many companies are on the brink of bankruptcy.
While Saudi Arabia and Russia have said they backed joint efforts, until now there has been little sign of a strategy shift. Saudi Arabia has told the state energy company to prepare for a prolonged fight. Saudi Aramco has informed oilfield services contractors to be ready to provide support as it seeks to keep production at heightened levels.
Russian energy minister Alexander Novak said on Thursday he did not “exclude the option of negotiations” with Saudi Arabia, but that the collapse in demand meant that cuts to supply would not necessarily prevent further oil price falls.
Complicating potential talks brokered by Mr Trump, Russia’s decision to abandon its alliance with Saudi Arabia was aimed partly at hurting US shale companies and the broader US economy. Washington has targeted the Russian energy industry through sanctions since 2014 in response to Moscow’s invasion of Crimea.
“The political hurdles to any supply deal are as large as the balance problem itself,” said analysts at JBC Energy.
Additional reporting by Derek Brower and David Sheppard