6 Questions About Trump's Oil Deal Announcement With Russia And Saudi Arabia
04.06.2020 - NEWS

April 6, 2020 [Forbes – Published on April 2, 2020] – On Thursday Morning, President Trump announced that he spoke with the Saudis who spoke with the Russians, and that they planned to cut at least 10 million barrels of oil production.

 
This is a huge cut, but it may be needed at a time when we have oil prices at lows not seen since the start of the century and a record drop in demand due to the coronavirus outbreak. Oil prices jumped by 35% as the news broke. Still, there are many questions left unanswered.
 
Here are some issues to consider:

  1. Are the numbers given by the president for oil produced per day? That would be the natural interpretation of his tweet, but it was left vague.
  2. 10 million barrels per day or more is a huge production cut. Who will be responsible for this cut? Will Saudi Arabia really drop down to 7 million barrels per day or less without corresponding cuts from the rest of OPEC? There are some preliminary indications that Saudi Arabia would only cuts its production 3 million barrels per day. Will Russia really commit to a 5 million barrel per day cut, and it will it follow through? According to RT, Russia has denied even speaking with the Saudis concerning oil production.
  3. How will OPEC and OPEC’s partners react? Will they participate in the cuts? Saudi Arabia indicated that it expects other countries, including those in OPEC+, to participate, but no concrete plans for a meeting have been set. Is a plan that expects the United States and Canada to participate in coordinated oil production cuts doomed from the start?
  4. How long will it take for the cuts to happen? How long will it take to finalize an agreement? How long will it take to physically cut that much production? On April 1, Saudi Aramco announced that it produced more than 12 million barrels that day. This was a record for Saudi Arabia.
  5. Who comes out the winner here? Saudi Arabia made a big point of increasing production when Russia wouldn’t agree to its proposed cuts in early March. That sent the oil market reeling. Now Trump has seemingly convinced both Saudi Arabia and Russia to do something that they both knew was wise but still refused to do. Which of the three—the U.S., Saudi Arabia and Russia—comes out of this situation in the best position?
  6. With another OPEC+ meeting probably set for three months for now, how long would this agreement even last?

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