Over the weekend, following the biggest ever oil short-squeeze in history following rampant hopes that Saudi Arabia and Russia were considering putting their differences aside and cutting up to 10mmb/d in oil output, we said that in a world where oil demand has plunged by as much as a quarter due to the coronavirus pandemic, or as much as 26mmb/d, such a cut would "not be nearly enough to balance the oil market but at least it was a start."
Then, moments ago, oil which had been drifting in Monday's session after the report that a new burst of animosity between Saudi Arabia and Russia has pushed back today's virtual R-OPEC meeting to later in the week, oil spiked after a Reuters rehash of headlines over the past 3 days, namely that Russia is ready to discuss very substantial oil output cuts "due to global demand collapse", but - just as we warned over the weekend - Russia dded that "global oil output cuts of 10mmbpd might not be enough to balance the market."
Well, yeah: with demand down 26mmb/d, supply would have to drop by a similar amount to balance the market.
As a result, Dow Jones reported separately that Saudi Arabia has also invited non-OPEC member Norway, UK and Brazil to the summit in hopes of getting everyone nation to agree to cut output, not just R-OPEC and potentially US shale producers. And as DJ also added citing sources, according to OPEC Plus - which now hopes to hold its summit on Friday - the output cuts would be contingent on G-20 cooperation. In short, while Saudi Arabia destroyed OPEC when it flooded the world with oil last month, it now hopes to not only recreate the oil producing cartel to include every single oil producing nation in the world but to convince said cartel to ease production.
Good luck with that.
In any case, since Brent shorts are now just shy of all time highs...
... any even remotely favorable news is being used by algos to spark a short covering squeeze, and this latest report was no different, sending WTI to session highs...
... even as the real news hit quietly after the flashing red healines, namely that OPEC+ countries still cannot agree on quotas to reduce oil production, and that Saudi Arabia is becoming dangerously petulant...
- "IF THERE IS NO DEAL, WE WILL HAVE SOME NICE NUMBER OF FLOATING TANKERS GOING NOWHERE," AN OFFICIAL IN SAUDI ARABIA SAID: WSJ
... repeating something else we said, namely that oil storage is running out.
As a reminder, if storage indeed runs out, negative oil prices - especially for landlocked areas - are virtually assured.