Oil slides after Trump declines to cut output
Brent crude futures drop after President Donald Trump fails to reduce US production to match Saudi Arabia and Russia planned cuts
Singapore — Oil prices fell on Friday, coming off their biggest one-day gains in the previous session, after US President Donald Trump said he had brokered a deal between Saudi Arabia and Russia to cut output, but made no offer to reduce US production.
Brent crude futures fell 3.27%, or 98c, to $28.96 per barrel at 3.35am GMT, after having soared 21% on Thursday.
US West Texas Intermediate (WTI) crude futures fell 4.46%, or $1.13, to $24.19 a barrel, after having surged 24.7% on Thursday.
Friday’s drop reflected market scepticism over whether a deal to call off the Saudi-Russian price war would go ahead if the US does not scale back output, and whether such a cut would be sufficient to balance the market in face of a deep economic recession caused by the coronavirus pandemic and draconian containment measures.
Trump said the two countries could cut output by 10- to 15- million barrels per day (bpd) — an unprecedented amount representing 10% to 15% of global supply. Trump said he had made no offer to cut US output.
Saudi Arabia called on Thursday for an emergency meeting of Opec and non-Opec oil producers, saying it aimed to reach a fair agreement to stabilise oil markets.
Analysts said both Riyadh and Moscow will be looking for the participation of other countries, in particular the US.
“It is difficult to see the current Opec+ group cutting output by at least 10-million bpd — the scale of the reduction would be just too much for the group to handle,” ING said in a research note.
Saudi could drop production to about 8.5-million bpd but would likely be reluctant to go below that level because of the desire to maintain associated gas production, while Russia will likely look for some measure of sanctions relief from Washington, said Helima Croft, global head of commodity strategy at RBC Capital Markets.
Washington will not ask US domestic oil companies for a co-ordinated cut in production and is still awaiting the details of planned cuts in Saudi Arabia and Russia, a senior administration official told Reuters.
The Canadian province of Alberta, home to the world’s third-largest oil reserves, is open to joining any potential global pact to reduce a glut of crude, premier Jason Kenney told Reuters on Thursday.
With the coronavirus pandemic worsening, Citi analysts forecast the decline in oil demand in the second quarter could be 18%-20% for the world, or 18- to 20-million bpd, which in turn should see refinery runs collapse by more than 2-million barrels per day, triggering an unprecedented growth in inventory of about 1-billion barrels over two months.
The proposed cut would at least ease some pressure on a global shortage of oil storage, analysts said.
“Running out of storage capacity would result in a complete collapse of the oil market which is crucial for the world economy now suffering from the greatest economic shock since World War 2,” Rystad head of analysis Per Magnus Nysveen said.
Even with the huge gains on Thursday, prices have still slumped nearly 60% this year.