Oil Extends Record Surge After OPEC+ Said To Discuss 10MM Bpd Cut

Update (0800ET): Minutes after this post, headlines screamed across Bloomberg, sending prices even higher, proclaiming “Russian Producers Ready for Oil Cuts in Bid to Stop Price Rout.”

Sounds very bullish right?

Except they buried the lead…

“the Russian producers are ready for coordinated action,” said the people, who spoke on condition of anonymity because the matter isn’t yet public.

“Russia may agree to a three-way arrangement with Saudi Arabia and the U.S.,” said four people at Russian oil producers.

In other words – Russia will cut if US and Saudis also cut – which is the issue to start with. Additionally, we note that Russia are yet to confirm their attendance to the call and President Putin has not given any mandate to the Energy Ministry to lower production.

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Following yesterday’s record surge, oil prices are rebounding from an overnight fade on the heels of yet more hope-filled supply-cut headlines from the OPEC+ coalition.

The Organization of Petroleum Exporting Countries and allies, a group led by Saudi Arabia and Russia, will reportedly discuss a possible oil output reduction by 10m b/d on April 6. However, as RIA Novosti reports, there are no quotas yet.

That didn’t stop the algos BTFDing…

Source: Bloomberg

Of course, as we detailed yesterday, a 10mm production cut – as unlikely as it is – remains a drop in the bucket compared to the collapse in demand that seems destined to continue… but that won’t stop the algos (for now).

As OilPrice.com’s Tom Kool noted, even if Saudi Arabia gets the UAE, Iraq and other non-OPEC members such as Brazil, Canada, Kazakhstan, Norway, Mexico, and Azerbaijan to make additional output cuts, this will still not be enough to counter the coronavirus impact on the markets in the short term.

All of this seems highly unlikely unless US producers will agree to force production cuts upon themselves (like Canadian producers did last year), something that US President Trump did not mention in his tweet.

Some smaller and larger US producers are happy to voluntarily cut back production, but oil majors such as ExxonMobil and Chevron have shown no interest in reducing production. Industry organizations such as the API and TXOGA also remain opposed to forced output cuts.

With global oil demand potentially crashing 30 million bpd in April/May, every producer is feeling the pain, but even a multilateral output cut that would involve all G20 producers isn’t likely to keep inventories from ballooning and prices from falling.

In fact, Russian Energy Minister Novak signaled very early this morning that Russia, instead of cutting supply, will wait for demand to come back in the next couple of months (though we note that President Putin will be meeting with Russian oil execs today: “the reason for this meeting is clear,” and President Trump is meeting oil executives later on Friday.)

Trade (fade) accordingly.