OPEC+ production cuts of 20 million barrels per day are in the works, US President Donald Trump tweeted Monday, a day after markets shrugged off a cut half that size.
“The number that OPEC+ is looking to cut is 20 Million Barrels a day, not the 10 Million that is generally being reported,” Trump said, stressing that he was personally involved in the negotiations.
Saudi Arabia’s energy minister on Monday appeared to be working to bolster Trump’s statement, telling reporters the cuts would effectively reach 19.5 million bpd when voluntary pledges by other G20 nations and oil held back in reserves were taken into account.
It was a marked change from the day before, when the OPEC Secretariat announced a “historic” 9.7 million bpd cut, after marathon negotiations to cement a deal.
Trump had initially “welcomed” that deal in a call with Saudi Crown Prince Mohammed bin Salman, the Saudi state news agency reported after midnight Sunday.
But by Monday morning in the United States, it was clear the markets were shrugging off the less than 10 million bpd cut.
Goldman Sachs called it “too little and too late.”
The deal was too little because the cuts – led by Saudi Arabia and Russia, the world’s second and third-largest producers – are dwarfed by approximately double the loss in global demand.
“No voluntary cuts could be large enough to offset the 19m b/d (19 million barrels per day) average April-May demand loss due to the coronavirus,” Goldman Sachs added.
The OPEC+ agreement effectively amounted to a climbdown from the hyper-production levels of the past month, during which Saudi Arabia flooded the market in a showdown with Russia.
That flood of oil coincided with Covid-19 reaching pandemic status, and bringing transportation sectors the world over to a grinding halt.
Given the “ongoing surge” of production from Saudi Arabia and its allies the UAE and Kuwait, the touted headline deal, Goldman Sachs wrote, actually represented a less impressive 7.2 million bpd cut from Q1 levels.
Factor in a less-than-stellar 35% compliance rate outside the core OPEC member states, and it was clear the voluntary cuts would need to go much further to make a dent, the firm said.
“The market will rally. Only for it to crash again in a few days once the market fully digests that the issue is not supply induced,” a Gulf-based economist told Asia Times last week.
That prediction appeared to be coming true on Monday, as a slight bounce from the deal came back down to earth and oil was again hovering around $23 per barrel.
The sequence of events put the spotlight again on Donald Trump, facing an election year in the United States, which is currently the world’s largest oil producer.
Senate Republicans and domestic shale companies have ratcheted up pressure in recent weeks, urging Trump to intervene diplomatically with Saudi Arabia.
“If anything near this happens, and the World gets back to business from the Covid 19 disaster, the Energy Industry will be strong again, far faster than currently anticipated,” Trump said on Monday.
He thanked Saudi Arabia, as well as Russia, for purportedly working towards record cuts.
The Saudi energy minister has raised the prospect of additional cuts should this round fail to stabilize markets.
“Oil prices aren’t responding to Sunday’s OPEC decision as hoped, but jawboning like this looks desperate,” said Ellen R Wald, author of Saudi Inc, in reference to the minister’s proposal.
The problem is demand, she said, “and when economies are locked down, low oil prices do [nothing] to stimulate that.”