BREAKING NEWS – End of the Price War?

Breaking News

Oil prices surged this morning as President Trump announced Saudi Arabia and Russia would be cutting back 10 million barrels of production with more potentially on the horizon. In a tweet released at 8:32 AM MST President Trump announced: “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!” [1] and approximately thirty minutes later added “…..Could be as high as 15 Million Barrels. Good (GREAT) news for everyone!” [1]. 

Prices Rebound 

Brent Prices skyrocketed an astonishing 46.68% to $36.29/bbl a mere 12 minutes after the tweet was published. WTI had a similar reaction jumping a staggering 33.90% to $27.13/bbl at the same time [2]. This surprising turn of events comes after weeks of an oil price war where the two biggest proponents, Saudi Arabia and Russia, refused to back down. Now, Trump expressed that Russia and Saudi Arabia were ready to significantly reduce production rates and have begun to hint at corporations to save oil prices. An emergency OPEC+ meeting is currently being planned to address prices which have been devastated by the global coronavirus pandemic [5]. President Trump plans to broker a deal between the world’s top three oil producers (United States, Saudi Arabia, and Russia) that would end the ongoing price war that followed the collapse of OPEC production cut agreements last month [5].  

Premature Announcement? 

While prices were already beginning to recover (slightly) after Russia announced yesterday it would be economically unfeasible for its producers to reach their promised 0.3-0.5 Million Barrel per day rise in production in today’s price environment, the news of a global reduction in supply triggered the dramatic price jump [3]. The news may seem nothing but positive, but it appears to be slightly premature. In a response to President Trump’s tweet, the Kremlin’s Press Secretary Dmitry Peskov said that President Putin had not yet spoken to the Crown Prince which caused oil to pull back from the initial highs just minutes before [6]. The Saudi Official News Agency then released a far more measured statement on the matter, expressing on behalf of Riyadah: “The kingdom calls for an urgent meeting of OPEC+ and a group of other countries with the aim to try and reach a fair deal to restore balance to the oil market” [7]. In other words, a deal needs to include cuts from every nation. The fine details of global production curtailments seem to still be up in the air, but one thing is certain: global storage is nearing capacity and production cuts need to happen regardless of an agreement being reached by the top three oil producers [6]. 

Further Benefits

Oil Prices were not the only benefactor of this morning’s announcement as US Oil Stocks were firmly on the rise. The news of a global production curtailment came on the heels of Wednesday’s announcement that President Trump’s plans to meet with oil majors on Friday and independent oil producers on Friday or Saturday to uncover steps to help aid the industry amid the drop in prices [4]. The pair of announcements helped ExxonMobil jump 10.5% ($41.48 ea) and rival Chevron climb 10.9% ($76.05 ea) Thursday morning. Other major jumps included Occidental Petroleum, who is expected to attend the Friday meeting with President Trump, leaping a jarring 19.4% ($13.91 ea) while Apache Corporation and Chesapeake Energy Corporation rose 22.3% and 12.3% respectively [5]. Only time will tell the results of a White House meeting between U.S. energy CEOs and an emergency OPEC+ meeting in the coming weeks. For the time being, the news comes as a brief sigh of relief in a time when our industry is struggling to keep its head above water. 

References 

[1] https://twitter.com/realDonaldTrump/status/1245720677660925952

[2] https://oilprice.com/oil-price-charts/45

[3] https://oilprice.com/Energy/Oil-Prices/Trump-Tweet-Sends-Oil-Soaring-25.html

[4] https://thehill.com/policy/energy-environment/490791-trump-says-there-could-be-10m-barrel-international-oil-production

[5] https://www.thestreet.com/investing/oil-surges-as-trump-plans-summit-sees-russia-saudi-deal

[6] https://www.marketpulse.com/20200402/opec-back-trump-announces-russians-saudis-deliver-10-million-barrel-production-cut-loonie-rallies/

[7] https://www.barrons.com/news/saudi-arabia-seeks-urgent-opec-meeting-to-stabilise-oil-market-01585839608?mod=hp_ALERT&tesla=y

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