U.S. President Donald Trump told CNBC that he had talked to his counterparts in Russia and Saudi Arabia to work out a solution for the crashing oil markets. Saudi Arabia has called for an “urgent” meeting between OPEC and its allies. The oil price went up.
The oil markets have been under constant pressure after the OPEC and non-OPEC allies failed to reach an agreement on cutting down the oil production amidst slowing global demand. On Thursday, the Brent crude price crashed to $22 per barrel. Besides, some analysts have also hinted for the crude prices going to $10 and also the possibility of turning negative. But in good news for the oil markets, U.S. President Donald Trump told CNBC that Saudi and Russia are soon to end the oil price war. This news has brought back some hope for the oil markets with renewed optimism.
In the largest percentage gain in a single day, the West Texas Intermediate Crude Futures jumped 20% ending at $25.32 per barrel. This is a much-needed breather since WTI has already dropped 59% this year. The International benchmark Brent crude has also jumped nearly 18% to trade above $29 per barrel.
Speaking to CNBC’s Joe Kermen, President Trump said that he had a fruitful discussion with his Russia and Saudi’s counterparts. He thus expects that the two would soon agree and announce cutting down 10 million barrels per day of oil production.
Speaking on Trump’s move, Dallas Fed President Robert Kaplan said:
“It will be very welcomed by the industry in the short run. As long as the coronavirus continues, there’s just a substantial amount of excess capacity being generated every day … It will be particularly helpful as we come out of this virus and will speed the time hopefully where the supply-demand for oil can get back into balance.”
Saudi Arabia Calls for Urgent Meeting between OPEC and Allies
On Thursday, Saudi Arabia called for an “urgent” meeting between OPEC and its allies. The official announcement as per the Saudi Press Agency stated:
“Today, the Kingdom calls for an urgent meeting for OPEC+ group and other countries, with aim of reaching a fair agreement to restore the desired balance of oil markets”.
RBC commodity strategist Helima Croft said that the U.S. could also have to cut their oil production in return. Croft said:
“What we know is the Saudis were looking at this through the lens of the financial crisis and believe they needed a response commensurate to 08/09. We know there’s an emergency OPEC meeting. They will be looking for signs that U.S. production will be curtailed. They will be watching what happens with the Texas Railroad Commission and with Canada.”
Despite the 24% gains in oil prices, some traders are still skeptical about whether the cut suggested by President Trump is feasible. Eurasia Group’s Ayham Kamel said that the possible path forward is a “large OPEC+ supply cut that is complemented by a U.S. cut”. Kamel also suggested that the meeting can possibly conclude with no deal.
“Even if OPEC+ producers reach such an agreement [without participation from the U.S.], the volume of cuts would be much more limited and below 10 million barrels per day,” added he.