Kilduff: Why Saudi Arabia won't cut oil output

Still massive oil glut in US: Pro

Top oil exporter Saudi Arabia will only cut output if a broad group of crude-producing nations agrees to do so as well, and that outcome is unlikely, Again Capital founding partner John Kilduff said Thursday.

"I think the Saudis are saying, if you all want to join in with us, we'll do it, but that's an impossibility," Kilduff told CNBC's "Squawk Box."

Oil prices rose Thursday on reports that Saudi Arabia had agreed to cut production by up to 1 million barrels a day if non-OPEC members Russia, Mexico, Oman and Kazakhstan commit to also reduce output.

OPEC members are meeting in Vienna for an annual gathering, where they will announce whether they will continue a policy of maintaining crude output at high levels. Saudi Arabia led that policy at last year's meeting, reversing its long-standing strategy of reducing output during oil price declines.

An oil site in the middle of the Rub' al Khali desert, Saudi Arabia.
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Kilduff said getting OPEC and non-OPEC member to agree to cuts is akin to herding cats. "There's not going to be consensus around that. This meeting's going to fall apart."

He said it would be particularly difficult to get Iran to agree as it seeks to return to the international oil market in 2016 after years of international sanctions.

Iranian leaders have said they plan to bring 500,000 barrels per day of oil to markets as soon as possible, and they anticipate reaching 1 million barrels. The world is already oversupplied with about 1.5 million barrels of oil.

Russian President Vladimir Putin will also be a tough sell, said Kilduff.

Russia, the world's largest energy producer, is grappling with the economic impact of sanctions related to its intervention in Ukraine. The country has traditionally pumped as much oil as possible, in large part to fill government coffers.

US drillers stuck with negative cash flow and lots of debt

Current OPEC policy puts pressure on producers of higher-cost crude, like U.S. shale frackers. But those drillers have proven unexpectedly resilient.

Despite a big reduction in the number of oil rigs in U.S. fields, American production has only dropped off slightly. Kilduff noted that stockpiles of U.S. crude have continued to build even though refineries are increasing activity, which should lead to a drawdown in inventories.

"If they can't work off the surplus in that kind of environment that speaks volumes" as to how much supply is on the market, Kilduff said.