Global oil prices rallied Thursday after President Donald Trump said Russia and Saudi Arabia were ready to "significantly" reduce production rates and planned a White House summit to address a market he said was 'ravaged' by the coronavirus pandemic.
The President said he would broker a deal between Saudi Arabia and Russia, the world's second and third largest producers, that would end the ongoing price war that followed the collapse of OPEC's three year production cut agreement last month in Vienna.
Trump also Tweeted Thursday that he expects Russia and Saudi Arabia "will be cutting back approximately 10 million barrels", although it was unclear as to when that would begin and over what time frame, if any, the cuts would take place. He later Tweeted that the cuts "could be as high as 15 Million barrels."
Saudi Arabia, for its part, said it wants to hold an emergency OPEC+ meeting, which would include Russia, in the coming weeks.
Brent crude futures contracts for June delivery, the benchmark reference for around 60% of global crude purchases, closed $5.20 higher on the session at $29.94 per barrel.
WTI crude futures for May delivery, which are more tightly connected to domestic gas prices, closed $5.01 higher at $25.32 per barrel.
Trump will meet U.S. oil executives Friday in Washington amid an historic collapse in global crude prices, which have fallen more than 60% so far this year as production increases, slowing demand and the coronavirus pandemic. The Wall Street Journal reported that the President is considering tariffs on Gulf crude imports in order to support a domestic industry already staggering under billions in debt and generational changes in investor ethics.
"Worldwide, the oil industry has been ravaged," Trump told reporters in Washington Wednesday. "Its very bad for Russia, its very bad for Saudi Arabia. I mean, its very bad for both. I think they’re going to make a deal."
Occidental Petroleum (OXY) - Get Report, which is expected to attend the Friday meeting with President Trump in Washington, was seen 19.4% higher at $13.91 while domestic drillers Apache Corp (APA) - Get Report and Chesapeake Energy Corp. (CHK) - Get Report rose 22.3% and 12.3% respectively.
Oil prices suffered the biggest decline on record last quarter pulling U.S. crude prices to the lowest levels in 18 years and below $20 for the first time since February 2002, as travel restrictions, manufacturing sector shut-downs and a looming global recession hammer demand prospects.
Saudi Arabia, the world's second-largest producer behind the United States, is also set to pump a record 12.3 million barrels of crude each day, starting this month, following the collapse of its output limit agreement with OPEC cartel members and Russia.
That surge in output, as well as the ongoing slump for global oil prices, has made drilling in the Permian Basin, a major source of shale deposits that could provide as many as 150 million barrels of oil over the next few decades, economically unviable.
The break-even price for U.S. crude, in order to justify the expense of new drilling projects in the region, needs to hover between $40 and $50 per barrel, most analyst estimate.
WTI crude last traded above $50 a barrel in early February, and has fallen more than 63% from its $61 peak at the start of the year. in fact, the low prices have made overseas sales almost impossible fur U.S. producers, with the Energy Department Wednesday reporting a 13.8 million barrel increase in domestic crude stocks, the largest since 2016.
"The drop in prices on our main export has been quite significant, serious, steep," Russia President Vladimir Putin said in a government meeting Wednesday. "We have been discussing it with colleagues both here, in our country, and at the international level: with our OPEC partners and I have recently discussed the issue with the president of the United States.
"The Americans are also worried because their profitability from shale oil production is ranging, by various estimates, in the region of $40 per barrel, so this too is a serious test for the U.S. economy," he added.