April 6, 2020 [Reuters – 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.
Saudi Arabia’s crude supply rose on Wednesday to a record of more than 12 million barrels per day, two industry sources said, despite a plunge in demand triggered by the coronavirus outbreak and U.S. pressure on the kingdom to stop flooding the market.
A producer pact to rein in oil production expired on Tuesday, removing restrictions on output by members of the Organization of the Petroleum Exporting Countries, as well as Russia and other producing nations.
Saudi Arabia had said that its oil exports would be about 10 million bpd, but it gave no indication of how much crude would go into storage.
One of the sources, speaking on condition of anonymity, said Aramco has increased its production to its maximum capacity of 12 million bpd.
Supply to the market, both domestically and for export, may differ from production depending on the volumes taken out of storage. Saudi Arabia has hundreds of millions of barrels of crude in storage inside the kingdom and abroad.
The national oil company Saudi Aramco declined to comment.
Riyadh’s plan to boost its production and supply to the market defies increasing pressure from Washington to end a battle with Russia for market share.
U.S. President Donald Trump said on Tuesday he would join Saudi Arabia and Russia, if need be, for talks about the fall in oil prices, which at current levels will squeeze out higher cost production, particularly U.S. shale output, which had surged in recent years. Later in the day Trump said he believed the two countries will work out their differences over oil production in the next few days.
The U.S. Energy Department said a race for market share during a time of falling demand was “frustrating” and “does not represent the kind of deliberative planning we would like to see from partners, and does not advance our shared interest in stable markets.”
U.S. lawmakers have taken a tough approach – raising the prospect of legislative action if Riyadh does not reduce oil output voluntarily.
Crude oil benchmarks ended a volatile first quarter with their biggest losses in history. On Wednesday, oil slid towards $25 a barrel, after touching its lowest level in 18 years.
On Tuesday, a Saudi oil industry source told Reuters Aramco has asked energy service companies to support its plans to lift oil production to its maximum capacity of 12 million bpd from April 1 “for the foreseeable future”.
The state oil giant has also told the service companies to “avail the required resources, including workforce and equipment” to help it raise its capacity to 13 million bpd, the source said.
But Saudi oil officials have yet to explain how Saudi Arabia can raise shipments so much when sweeping retractions on movement to contain the coronavirus are destroying demand and surging freight rates are a further deterrent for potential buyers.
Saudi Arabia has struggled to find customers for its extra oil, industry sources said, undermining the kingdom’s efforts to capture market share.
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