(Update 1330ET): Well, it appears that we officially have no deal, because moments ago Russia's energy minister Novak made it clear that instead of cutting supply, Moscow will wait for demand to return:
- RUSSIA'S NOVAK SAYS WE HOPE THAT GLOBAL OIL DEMAND WILL RISE IN A FEW MONTHS
Then Dow Jones made it clear that according to Saudi sources, Trump's tweet was nothing but baseless oil price manipulation:
- SAUDI OFFICIAL SAY TRUMP'S TALK OF 10 MILLION BBL A DAY CUT OR ABOVE WAS AN EXAGGERATION
Finally, Moscow made it clear where to expect oil prices in the coming year:
- RUSSIA IS SAID TO BASE REVISED 2020 BUDGET PLAN ON $20 OIL
Why oil is still up at this point is beyond us.
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Update (1300ET): As Bloomberg adds despite the triumphant tone of Trump’s tweets, Saudi Arabia and Russia have yet to agree to the size of any production cut, according to an OPEC+ delegate familiar with the conversations. Any curbs will be conditional on every major oil producer also agreeing to reduce production, the person said, asking not to be named discussing diplomatic conversations.
Saudi Arabia wants countries that aren’t part of the OPEC+ alliance to join in any future pro-rationing. Although Riyadh hasn’t drawn up a formal list, in the past OPEC+ had invited big American oil producers, Brazil and Canada to its meetings. Both Canada and Brazil have previously declined. OPEC had also invited the Texas Railroad Commission, which regulates the oil industry in the state, to participate in its meetings.
That, however, is not in the cards because as Bloomberg also notes:
- TRUMP NOT PLANNING TO ASK DOMESTIC OIL PRODUCERS FOR CUT: RTRS
Trump is scheduled to speak with the leaders of U.S. oil producers and refiners on Friday. One industry leader said the president may have been motivated to remark on the surplus oil production because the U.S. is literally running out of physical space to store crude.
“I think something like this was inevitable because there is nowhere to put the oil,” said Dan Eberhart, a Trump donor and chief executive of drilling services company Canary Drilling Services. “I think this is out of necessity, not out of gamesmanship.”
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Update (1125ET): Caught between a rock (not pissing off Trump), and a hard - or rather soft - place, (hoping to flood the world with millions of barrels in excess oil), moments ago Dow Jones reported that the Saudis are mulling a production cut to 9mmb/d but only if others join.
Again, this means Crown Prince MbS is only willing to go back to where the March Vienna OPEC summt was... just before Russia refused to cut by 500kb/d and all hell broke loose. In other words, this is not a negotiation, this is an offer to return to the bargaining table at the point where Russia balked.
- SAUDIS MULL OIL-OUTPUT TO BELOW 9M B/D IF OTHERS JOIN: DJ
Oh, and there is another problem: even if Saudis cut from 12mmb/d to 9mmb/d and Russia cuts by 500k, that's 3.5mmb/d less in supply. Meanwhile, global demand is down by over 15mm barrels! In other words, the only way the oil market will rebalance is if both Saudi Arabia and Russia both stop pumping, even as shale continues to flood the world with US oil (because as Whiting showed yesterday, the company will continue business as usual even under Chapter 11).
In other news, nothing the Saudis do will reduce US output, which is precisely the problem.
In short, fade this rally.
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Update (1045ET): Shortly after the market exploded higher on Trump's tweet which also sent oil soaring by a mindblowing 35%, Kremlin spokesman Dmitry Peskov said in a text message that:
Russian President Vladimir Putin has not spoken to Saudi Crown Prince Mohammed Bin Salman and hasn’t agreed to cut oil production to boost prices,
“No. There was no conversation,” Peskov said when asked about tweet by U.S. President Donald Trump saying that Russian, Saudi leaders had agreed to cut oil output to boost prices.
Which appears to confirm what we said below. Additionally, Bloomberg's Javier Blas notes that the official statement from Riyadh (via the Saudi official news agency) is "far more measured" than Trump's declaration that a cut of up to 15mmb/d is coming :
THE SAUDI VERSION: The statement from Riyadh (via the Saudi official news agency) is far more measured: call for an OPEC+ meeting with the aim of "seeking a fair agreement" -- all code words from the Saudis for a deal needs to include cuts from every nation | #OOTT #OilPriceWar pic.twitter.com/CW7JLFOKr8— Javier Blas (@JavierBlas) April 2, 2020
All code words from the Saudis for a deal that needs to include cuts from every nation, i.e., going back to the March Vienna OPEC+ summit which, as a reminder, collapsed because Russia refused to comply with the Saudi ultimatum to cut, and launched the price war.
So it appears like Trump 'bent the truth' that any agreement was in place or imminent.
Finally, a simple logic test confirms that neither Riyadh nor Moscow have any incentive to cut at this moment as the only winner will be US shale.
If Saudi Arabia and Russia could take their oil revenues down to $0 that would be great. It would prevent the Fed from having to par bid the bonds of bankrupt energy companies— GreekFire23 (@GreekFire23) April 2, 2020
In short, don't hold your breath for a deal:
Imagine how much time it’ll take to get a deal done with opec plus and other prosucing states (possibly the US) #OOTT— Amena Bakr (@Amena__Bakr) April 2, 2020
Oil (and stocks) are both fading...
GLJ research's Gordon Johnson is skeptical also, writing that:
"$25 WTI doesn't help US. We need $50. What trump is doing doesn't matter. More BKs.
No new rigs coming back if they cut production. All they're doing is filling a 20mm barrel hole that we have b/c planes and cars are grounded.
And once economy comes back they turn back on anyway.
Market will be back negative by lunch."
Even as Trump doubles down...
.....Could be as high as 15 Million Barrels. Good (GREAT) news for everyone!— Donald J. Trump (@realDonaldTrump) April 2, 2020
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Whether it's just more desperate jawboning or resembles reality, CNBC's Joe Kernan reports that he just spoike to President Trump who claims his conversations with Putin and MbS suggest an oil production cut of up to 15mm barrels/day is imminent.
President Trump tells CNBC that he spoke to President Putin yesterday and Saudi Crown Prince today and expects them to announce an oil production cut of 10 million barrels and could be up to 15 million.
President Trumptold reporters in Washington this morning that...
"Worldwide, the oil industry has been ravaged. Its very bad for Russia, its very bad for Saudi Arabia. I mean, its very bad for both. I think they're going to make a deal."
...and has just tweeted his confirmation:
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!— Donald J. Trump (@realDonaldTrump) April 2, 2020
The result is not surprisingly a massive 35% surge in crude...
With a huge gap higher as Trump stopped everyone out...
Stocks are also being buoyed by this...
We suggest skepticism here is well placed - it makes no sense for Saudis to back down now.
Just this morning, Kremlin spokesman Dmitry Peskov told reporters on a conference call that consultations with Saudi Arabia haven’t started yet and that there are no plans for Putin to contact Saudi leadership in next day or two. Additionally, he noted that "nobody is satisfied” with the situation on the global oil market, and confirmed that there have been no discussions yet of any possible agreements to replace OPEC+.