WTI crude oil surged nearly 25% today after President Trump said he expects Russia and Saudi Arabia to soon announce production cuts of around 10 -15M barrels per day (bpd).
It is the largest single day percentage gain in history.
Trump told CNBC that President Putin and the Crown Prince Mohammed bin Salman had agreed over the phone to consider production cuts that might restore balance to the oil markets. Saudi Arabia immediately announced an emergency meeting between OPEC, Russia and other nations for further discussions.
“If it happens, will be GREAT for the oil & gas industry!” tweeted the President.
The oil sector has been one of the hardest hit during the COVID19 epidemic, with dwindling demand exacerbated by the price war between OPEC and Russia. The commodity has plummeted nearly 60% since early January.
Such a move would direct some much needed inflows into oil stocks, now on the verge of bankruptcy. With oil previously hovering around US$20 a barrel, it’s almost impossible to make a profit so these cuts are undoubtedly necessary for the future of oil producers.
However there is a great deal of scepticism around Trump’s announcement with the Saudi’s immediately responding, calling the 10-15m figure an “exaggeration”. Analysts agree, declaring it “unrealistic” as even the lower bound of the President’s touted production cuts (10m) would be nearly all of Saudi Arabia’s current output.
Russia denied the call ever took place, taking further heat out of the oil rally that ended up 25% ahead, from highs of over 35%.
Whether the cuts go ahead, Trump is importantly encouraging the world’s oil superpowers to come to the negotiating table and break the deadlock that is hurting them all.
What happens from here is anyone’s guess.