U.S. President Donald Trump on Thursday said he had spoken to Saudi Crown Prince Mohammed bin Salman and that he expects Saudi Arabia and Russia to cut oil output by 10 million to 15 million barrels per day, as the two countries signaled willingness to make a deal.
A cut of that size would be unprecedented for the Organization of the Petroleum Exporting Countries (OPEC) and its allies, which include Russia. From late 2016 to early this year, those nations had combined for several rounds of production curbs, including a December deal to cut output by 1.7 million bpd.
That deal fell apart in early March after the Russians and Saudis could not come to an agreement to extend those cuts, and markets cratered, with Brent and U.S. crude losing about 55% of their value in that month.
Brent and U.S. crude futures rallied sharply, with Brent up 17% to about $29 a barrel and U.S. crude up 21% to about $25 a barrel.
BRIAN WILLIAMS, PARTNER AT CARL A. MARKS, AN ADVISORY FIRM IN HOUSTON:
“It’s a very needed and necessary step - Nothing works at $20 oil. Physically, the tap has to get turned off.
“I think Saudi and Russia have to cut production. With shale producers, there’s no one who could make an edict around these things. Instead, no one will invest more money in drilling or fracking. The laws of economics are going to cause U.S. supply reaction to happen.”
DAN EBERHART, CEO OF CANARY OIL, A PRIVATE DRILLING COMPANY BASED IN DENVER:
“Putin is motivated not by price alone. He cares about sanctions and Russian prestige.”
JOSH YOUNG, CHIEF INVESTMENT OFFICER FOR BISON INTERESTS, A HOUSTON INVESTMENT FIRM:
“I’m cautiously optimistic about potential production cuts. The oil supply demand situation is untenable, and if there are broad production cuts, it could bring the oil market closer to balance. But there is a lot of uncertainty here, and it likely takes lifting covid 19 related stay-at-home orders for the oil market to recover.”
JAMES WEST, SENIOR MANAGING DIRECTOR AT EVERCORE ISI:
“The cuts may not be entirely feasible and don’t solve the current demand destruction which is likely to continue through 2Q. The oversupply will lead to global inventories filling and add another overhang to oil prices.”
JOHN KILDUFF, A PARTNER AT AGAIN CAPITAL MANAGEMENT IN NEW YORK:
“It was obviously a bit surprising and seemingly over the top. I was trying to do the math and it’s very hard to get to that level of output cut as you go through the various countries, including the U.S. that could contribute to this. But there has to be a desire within the industry, within the producing circles, to do something about this low price.
“This is terrifically damaging to them all. I think to the extent that the Saudis can get some cooperation, I think they would be willing to lead the way.”
PHIL FLYNN, ANALYST AT PRICE FUTURES GROUP IN CHICAGO:
“The question is whether U.S. producers will go along with it. The question is whether Trump will be able to use his bully pulpit and get people to shut in production.
“We are also hearing about an emergency meeting of OPEC for production cuts. Whether the U.S. or Canada will go along with a cut remains to be seen, but let’s face it, they’re cutting anyway because of conditions.”
BOB WATSON, CEO OF ABRAXAS PETROLEUM, SAN ANTONIO, TEXAS:
“I don’t think this does anything in the near term. Our pipelines have told us they don’t have room for our barrels.” Within eight weeks there will be major issues as production outstrips storage capacity, he said.
“If I wasn’t fully hedged, I would have taken advantage of this opportunity to put more hedges in place, but this just doesn’t change things. If our oversupply is so big, cutting 15 million barrels won’t help in the near-term.
“I don’t see any way other than letting the market drive prices down. Even the government can’t fix this situation.”
GENE MCGILLIAN, VICE PRESIDENT OF MARKET RESEARCH AT TRADITION ENERGY IN STAMFORD, CONN.:
“The question will come down to, will they be able to agree to something? It’s taken couple of weeks of Brent at $25 and WTI at $20 and it seems as if Russians are more approachable than they were a month ago. I’m a bit surprised by that. We’ll have to wait and watch.
“Putin and President Trump were having discussions and now it seems there is willingness on the part of Russians to go along with Saudi suggestions. The proof will be in pudding of course. The market has dropped so significantly that this kind of turnaround is often times the case when we see news like this. Whether we return to normalcy depends on what the OPEC+ meeting does or whether it ends the same way the last meeting did.”
SANDY FIELDEN, DIRECTOR OF OIL AND PRODUCTS RESEARCH AT MORNINGSTAR IN AUSTIN, TEXAS:
“It’s one thing to send optimistic tweets - quite another to coordinate actual production cuts when Russia dragged its feet throughout the OPEC+ era and the U.S. has no controlling authority to implement production limits. Enacting something real could take months.”
BOB YAWGER, DIRECTOR OF FUTURES AT MIZUHO IN NEW YORK:
“That’s one of the most ridiculous things I’ve ever heard in my entire life. First of all, between the two of them, they produce 23 million barrels a day of crude oil. So you’re trying to tell me that these guys are going to cut 10 million barrels from production?”