OPEC Holds Emergency Meeting As Trump Piles Pressure on Russia, Saudi Arabia to Deliver Massive Production Cuts

President Donald Trump wants a 10 million barrel per day reduction in OPEC's crude output, a figure that's nearly five times higher than the cartel's biggest agreement on record.

OPEC leaders, along with Russia, will hold an emergency teleconference Thursday to discuss what could be the largest output cut in the cartel's history amid a record collapse in global crude prices triggered in part by the coronavirus pandemic.

President Donald Trump first floated the idea of output cuts last week when he Tweeted the Saudi Arabia and Russia had agreed to reductions that could reach 10 million barrels per day. That would not only be the largest daily reduction in OPEC's history -- more than five times the record 2.2 million barrel per day pact agreed in 2008 -- it would also be around half of the output of the world's second and third largest producers.

Reuters, in fact, has reported that the Thursday talks could see a cut of up to 20 million barrels per day, but that will likely be split among non-member states following tomorrow's G20 conference call.

Russia, which failed to agree to a much smaller cut during OPEC's chaotic meeting in Vienna in early March, is said to be willing to cut by 1.7 million barrels per day if cartel members can make up the difference and U.S. drillers are willing to participate.

"While this is around 15% of their total output and would be a meaningful cut, it would still be a struggle for the whole of OPEC+ to reach 10 million barrels per day, and therefore require the help of other oil producers if they are to get near this target," said ING's head of commodity strategy Warren Patterson. 

"Furthermore, if the group does manage to agree on a 10 million barrels per day cut, while it would offer some short-term relief to the market, it would still not be enough to balance it over 2Q20," he added. "So it may not take too long for prices to come under pressure once again."

Brent crude futures contracts for June delivery, the benchmark reference for around 60% of global crude purchases, were last seen $2.47 higher from their Wednesday closing price in New York and changing hands at $35.31 per barrel.

WTI crude futures for May delivery, which are more tightly connected to domestic gas prices, were marked $2 higher at $27.09 per barrel, after briefly trading south of $20 in the early part of last week.

Trump has added further pressure on the cartel's discussions, which are expected to be followed by a G20 teleconference on Friday, but threatening to slap "very substantial" tariffs on non-U.S. crude imports in order to protect jobs in the American energy industry.

"If I have to do tariffs on oil coming from outside or if I have to do something to protect our tens of thousands of energy workers and our great companies that produce all these jobs, I'll do whatever I have to do," Trump told reporters late Sunday after weekend meetings with energy executives at the White House.

The President has also insisted that U.S. drillers have "already cut" production, a view that could be justified by a record gain in U.S. crude inventories, which by 15.2 million barrels last week, capex and spending reductions unveiled by companies such as ExxonMobil  (XOM) - Get Report and Chevron Corp.  (CVX) - Get Report, and the steepest slide in rig installations around the Gulf of Mexico and the shale-rich Permian Basin in at least five years last week.

U.S. participation in an output cut agreement would also be complicated by antitrust regulations, although some experts have said that government officials could order the cuts directly in order to skirt existing legislation. 

Saudi Arabia, the world's second-largest producer behind the United States, was set to pump a record 12.3 million barrels of crude each day, starting this month, following the collapse of its three-year output limit agreement with OPEC cartel members and Russia in Vienna last month.

That surge in output, as well as the ongoing slump for global oil prices, has made drilling in the Permian, 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.