Reduction or death: Trump heats oil with tweets

The world oil market is optimistic about the publication of Donald Trump on Twitter, which on Thursday said it was awaiting a new deal to reduce OPEC + oil production by 10 million barrels per day. This was announced by the US president after negotiations with the Crown Prince of Saudi Arabia, Mohammed Ibn Salman, who, in turn, allegedly spoke with Vladimir Putin. The oil market took this information too optimistic: at the moment oil was growing at $ 10 and even after the rebound is trading above $ 30 per barrel.

Negotiations between Putin and the Crown Prince of Saudi Arabia were promptly denied by the Kremlin’s press service.

The Ministry of Energy of Azerbaijan has confirmed that Saudi Arabia is gathering an urgent meeting of OPEC + participants to stabilize oil prices via videoconference. It is noted that other manufacturers can take part in it.

The representative of the state government of Texas, Ryan Sitton, also said that he had discussed with Minister of Energy of the Russian Federation Alexander Novak a reduction in production by 10 million barrels per day. Perhaps the meeting will be attended by representatives of American oil companies - which is fundamentally from the position of Russia. Note that 10 million barrels is about 20% of the current average daily production of OPEC + member countries.

Now the price of oil is overestimated by the expectations of markets that traditionally respond to any news. The real correlation of supply and demand, exacerbated by the pandemic, Twitter Trump can not affect. It should be noted that OPEC + member countries produce about 45 million barrels per day, so a reduction of 10 million barrels is a serious step.

The Financial Times, citing sources, report that American shale producers are asking the White House to put pressure on Russia and the SA to force them to cut production. According to the publication, it is even proposed to introduce new sanctions against Russia and the SA, to stop cooperation with Moscow or to stop the supply of Saudi oil to the United States for the Motiva refinery owned by Saudi Aramco.

It is hoped that the American shale industry will not be able to significantly participate in reducing production. Most likely, the US will try to impose a reduction in OPEC + through Saudi Arabia. US shale oil producers produce an average of 13.5 million barrels per day. Despite the fact that American refineries consume about 20 million barrels daily, part of the oil produced is still exported.
We spoke with Alexander Frolov, Deputy Director General of the National Energy Institute, about what to expect from a new meeting within OPEC +.

“SP”: - What happened to the market after the collapse of the OPEC + transaction in March?

- Saudi Arabia began to make high-profile statements that it would increase production in April to 12.5 million barrels per day, that it would flood the world with oil and, by dumping, fight for the market in Russia. As a result, prices collapsed. This fall has become catastrophic for many players. For example, in the United States, the revenue that companies could get from each barrel only allowed servicing debt obligations. The Saudis were faced with the fact that they did not respond to a generous offer of discounts, because the world does not need so much oil - there are not so many oil storage facilities. Many consumers in Europe from the number of refineries are faced with the fact that for the next two months the level of demand for products is not determined. The situation is most difficult in the CA and the USA, but you should not engage in cap-making.

"SP": - The Financial Times reported that the United States may go for new sanctions to support manufacturers

- FT writes that American oil companies have begun lobbying for sanctions against Russia and Saudi Arabia. This is an amazing situation, if you look at how it is served. Firstly, American oil companies clearly do not intend to reduce their production. They suggest introducing new sanctions against Russia, or remove existing ones if Russia makes concessions. The confusion and stagger is already at the concept level.

They also call for obliging US refineries to buy oil only from US producers in the coming months. But domestic production in the United States is not enough to meet the needs of the refinery. It is not suitable in full for oil refining. In addition, it is hardly possible to oblige private companies to buy oil from other private companies.

Another US oil lobby proposes to impose duties or prohibit the purchase of oil from Saudi Arabia. CA is not the largest supplier in the USA. The main supplier remains Canada, which supplies up to 50% of the necessary raw materials - about 120 million barrels per month. About 18-20 million barrels per month are supplied by Russia, and Mexico supplies the same amount. Saudi Arabia - from 15−18 million barrels per month. In case of refusal of deliveries to the USA, Riyadh will not lose much.

“SP”: - Will American manufacturers participate in the OPEC + deal?

- Based on the position voiced by the American oil industry, some of them are ready to negotiate. Perhaps we are talking about medium and large companies. For small companies - almost all of them are on the brink of ruin - no negotiations are unacceptable, because they do not have reserves to reduce production. Since 2016, the United States increased production by 4.5 million barrels per day - a very large increase. This figure is comparable with the production volumes of entire countries, for example, Iraq or Iran.

"SP": - Give a forecast on the results of the OPEC + meeting?

- Negotiations alone are wonderful. The worst world, better than a good quarrel. And the fact that OPEC + will meet will have a very positive effect on oil prices at the moment. You can expect spasmodic growth of up to $ 35 and above. But the main issue is not panic or optimistic market sentiment, the question is the balance of supply and demand, as well as the ability of countries to negotiate for the common good. In addition, one cannot solve other people's problems at one’s own expense, and if the United States does not join in any way, then the prospects for negotiations will be very small.

“SP”: - Evaluate Trump's proposed decline in production?

“If OPEC +, which produces about 45 million barrels a day, decides to cut production by 20% to make the global oil and gas industry better, then Russia will have to cut its daily production by about 2 million barrels.” Then you will have to refuse supplies, for example, to Europe. Theoretically, this is possible for several months, but such operations have a bad effect on the wells and entail costs. A more positive decision would be if the United States joined the deal, because sanctions would not change anything.

Johannes Röll

Johannes Röll was born 1978 in Brilon,Germany. Graduated RWTH Aachen University. Over the past ten years he worked as Head of the plastic card team, where he was mainly responsible for the development of the distribution, Head of sales Department and Financial Analyst,where he got experience in planning and support sales figures for branches. For the present he works as freelancer

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