03.04.2020 – Special Report. Fasten your seat belts: After hopeful signals from Donald Trump and from Texas, oil prices are through the roof. Oil stocks are also rising sharply. Allegedly, OPEC+ production is soon to be reduced by 10 to 15 million barrels of oil per day. Moscow waves them off, the Saudis sail. But the supposed news is enough to force shorties to close their position and catapult them out of the market.
Largest daily profit ever
Yesterday, Brent was up 47 per cent and WTI posted a gain of almost 25 per cent. According to Oilprice.com, Brent posted the biggest daily gain ever yesterday. The reason was a news story that was too good to be true for the battered oil bulls.
Hope to cap 15 million barrels
Trump reported yesterday on Twitter that he had spoken with Crown Prince Mohammad bin Salman in Saudi Arabia and the Saudis in turn with Russia’s President Vladimir Putin – Trump hopes and expects that production will soon be capped at ten million barrels a day. In front of journalists Trump concretised that it could even be 15 million barrels. Bloomberg reported, citing insiders, that the statement was based on a telephone call from Trump to bin Salman, who hoped to win other countries over to the cut. A second source said Trump’s statement was purely “aspirational” – based only on hope.
Texas pours gasoline on the fire
But Ryan Sitton, the head of the Texas Railroad Commission (TCR), also shot up prices. He reported on Twitter that he had talked to Russian Energy Minister Alexander Novak about “10 MBPD out of global supply”. He said he would shortly be talking about this with Saudi oil minister Prince Abdulaziz bin Salman. The TCR is the regulatory authority for the suffering oil industry in Texas. In fact, there are considerations in Texas for a cut in production, which the Saudis would like to hear.
Money for US oil industry
The White House also provided relaxation. Treasury Secretary Steven Mnukhin said yesterday that the US oil industry, which is on the verge of collapse, could receive loans from the Federal Reserve. The Fed may grant loans of 4 trillion dollars as part of the aid program recently passed by Congress. The US administration also discussed import duties for foreign oil. China also supported the prices: Beijing wants to use the low oil prices to build up its reserves.
However, Moscow immediately killed yesterday’s news: Kremlin spokesman Dmitry Peskov announced that Putin had not spoken with Mohammad bin Salman, there was no agreement to cut subsidies to support prices. He further told the news agency TASS that the situation in the oil market was unsatisfactory for all sides, but nobody had started to talk about any deals. Russia’s oil minister Novak said he hoped global demand would pick up in a few months.
Saudis want to force others to cut
Meanwhile, according to Oilprice.com, the Saudis called for an emergency meeting of OPEC+, which could lead to an agreement “with another group of countries” outside the expanded cartel. That means the USA, Norway, Brazil. Which also means that there is ultimately no agreement at all. Most recently, the Dow Jones news agency reported that the Saudis would only cut about 2 million of their production – but only if other countries follow. The rest of the 15 million barrels would have to be contributed by others.
Bears released for shooting
Oilprice.com analyzed that the Saudis had scored points by calling an emergency meeting in Washington. However, a massive cut in production by the Saudis on their own or a joint big step with Russia was highly unlikely. Ole Hansen of Saxo Bank commented on Twitter that yesterday’s news had sucked a lot of fresh money from the retail business into the market. And then he commented quite drastically: “Trump just created a show in the oil market which many will lose from.”
It’s on the Kremlin
The ball in the oil price is now in Moscow – Texas and the Saudis have signalled their agility with yesterday’s action. So far, however, there has been no sign of Igor Sechin, head of Rosneft, giving in – he wants to destroy US oil producers by keeping oil prices low.
However, the group of pragmatic economic liberals in the Kremlin could possibly change President Vladimir Putin’s mind. Russia is at a standstill; Putin has just extended the paid break until the end of April. According to the “Moscow Times”, former finance minister Alexei Kudrin, currently economic advisor in the Kremlin, warned the president that even with moderate setbacks from Corona, the Russian economy will shrink between 3 and 5 percent this year. This means that millions of Russians are likely to lose their jobs – the unemployment rate could skyrocket from the current 4.6 percent to 15 percent, according to Igor Nikolayev, an analyst at management consultant Grant Thornton.
It is quite possible that this is why Putin is putting the nationalist Siloviki – the hardliners from the secret service, the military and the energy industry – out of action under Sechin and still manages to get a deal with the Saudis. So you see: politics is swirling the markets around. The only thing that is clear is that nothing is clear – only that volatility will remain with us.
The Bernstein Bank wishes successful trades despite all this!
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