President Donald Trump told CNBC on Thursday he expects Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman to announce a deal to cut oil production by 10 million to 15 million barrels.
West Texas Intermediate crude surged 24.67% to settle at $25.32 per barrel, for its largest single-day percentage gain in history. Given WTI's 59% decline this year a smaller gain, of course, now accounts for a much larger percentage move. International benchmark Brent jumped 21% to settle at $29.94 per barrel, in what was also its best day on record.
Trump made his comments in a telephone conversation with CNBC's Joe Kernen.
The president said in a tweet later that a production cut would be "great for the oil & gas industry," and that the cut could be "substantially more" than 10 million barrels.
Oil production is typically discussed in terms of barrels per day, but Trump made no reference to the time frame of the cuts. Additionally, it was not clear how the cuts would be distributed across oil-producing countries.
RBC commodity strategist Helima Croft said the U.S. could have to give up something in return.
"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," she said, referring to the collapse of prices during the 2008-09 financial crisis.
"The question is can Trump put together the package that gets them to do that?" Croft said. "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," she added.
Saudi Arabia on Thursday, via its official press agency, called for an "urgent" meeting between OPEC and its allies.
"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," the Saudi Press Agency said.
Despite oil's nearly 25% gain, the contract did close off its highest level of the day as traders questioned whether a cut of the magnitude Trump is suggesting was possible, especially if the U.S. doesn't participate. According to a report from Reuters, the administration does not intend to ask U.S. companies to scale back production.
Outlining what could possibly come next, Eurasia Group's Ayham Kamel said the most likely path forward is a "large OPEC+ supply cut that is complimented by a U.S. cut." Alternatively, he noted that talks could conclude with no deal. The least likely outcome of all is OPEC+ cuts without some form of U.S. participation.
"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," Kamel wrote in a note to clients.
Oil's steep slide has contributed to the broader market's sell-off, which has seen the S&P 500 and Dow Jones Industrial Average tumble into bear market territory.
"It's obviously welcome," Dallas Fed President Robert Kaplan told CNBC regarding a production cut. "As long as the coronavirus continues, there's just a substantial amount of excess capacity being generated every day."
"People have warned that even with a substantial move from Saudi Arabia and Russia that we're going to spend a substantial amount of time working off a high level of oversupply," he added.
Despite Thursday's jump, WTI is still down more than 40% during the last month.
Demand has evaporated as the coronavirus outbreak has halted travel worldwide and slowed business activity, just as a price war broke out between powerhouse producers Saudi Arabia and Russia.
In March OPEC de facto leader Saudi Arabia recommended cutting production by 1.5 million barrels per day as the pandemic slowed demand. But OPEC ally Russia rejected the proposal, sparking the price war.
On Wednesday Saudi Arabia ramped up its production to a record high of more than 12 million barrels per day, after previous OPEC+ production cuts expired at the end of March.
As oil prices cratered — WTI is coming off its worst month and quarter in history — the U.S. sought to intervene.
U.S. producers have been among the hardest hit as companies struggle to break even with depressed oil prices. On Wednesday, Whiting Petroleum became the first major U.S. shale producer to declare bankruptcy. On Friday, executives from at least seven U.S. energy giants including Exxon and Chevron will meet with Trump at the White House to discuss energy policy.
Oil prices moved higher in afternoon trading after Ryan Sitton, one of the three Texas Railroad Commissioners, said he spoke with Russian Energy Minister Alexander Novak regarding a production cut.
"While we normally compete, we agreed that COVID19 requires unprecedented level of int'l cooperation. Discussed 10mbpd out of global supply. Look forward to speaking with Saudi Prince Abdulaziz bin Salman soon," he said in a tweet.
Before Trump's comments to CNBC, oil had been up around 10% after the White House had signaled optimism over a possible deal. Crude also got a boost after Bloomberg News reported that China will start buying oil for its emergency reserves.
"The potential for production cuts from Saudi Arabia and Russia is helpful and supportive for oil prices," said Stacey Morris, director of research at information services firm Alerian. "However, even if cuts total 15 million barrels per day, the global oil market could still be in an oversupply situation."
She added that because of the coronavirus, global demand "remains the wildcard."
- CNBC's Patti Domm and Nate Rattner contributed reporting.
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