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NYMEX WTI surges 25% after Trump indicates possible production-cut agreement

Highlights

Trump says Moscow, Riyadh talked, may cut output 10 million-15 million b/d

Russia denies speaking with Saudi Arabia

Saudi Arabia calls for 'urgent meeting' of OPEC+ group

New York — Crude prices settled sharply higher Thursday amid optimism of a possible detente in the ongoing Russia-Saudi oil price war.

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NYMEX May WTI settled $5.01 higher at $25.32/b and ICE June Brent was up $5.20 on the day at $29.94/b,

Crude futures surged midday Thursday after US President Donald Trump tweeted that he had spoken by phone with Saudi Crown Prince Mohammed bin Salman, who in turn called Russian President Vladimir Putin to heal their oil market rift.

"I expect and hope that they will be cutting back approximately 10 million [b/d], and maybe substantially more, which, if it happens, will be GREAT for the oil and gas industry!" Trump tweeted, later adding that the cuts could even be as high as 15 million b/d.

June Brent briefly spiked 47% to a session high $36.29/b and WTI surged 35% to a high of $27.39/b on the news.

But oil prices retreated from these highs amid reports that Kremlin spokesperson Peskov said that Putin has not spoken to the Crown Prince.

Earlier in the day, Russian energy minister Alexander Novak said a coordinated OPEC+ production cut would not be enough to compensate for the fall in demand caused by the coronavirus pandemic, which he said could reach 20 million b/d.

Saudi Arabia on Thursday called for an "urgent meeting" of the OPEC+ alliance and other producers to negotiate a deal on output cuts that could stem the coronavirus-induced freefall in oil prices.

In a statement carried by the official Saudi Press Agency, the kingdom said it was "seeking a fair agreement that will restore the desired balance to the oil markets" and indicated that it wanted other countries outside the OPEC+ alliance to join the talks.

Saudi state-run oil giant Aramco said Wednesday it was filling 15 tankers with more than 18.8 million barrels of crude, its most ever in one day as it ratcheted up its price war with former ally Russia.

NYMEX May ULSD settled up 6.28 cents at 99.51 cents/gal and May RBOB climbed 11.63 cents to 66.28 cents/gal.

Achieving a 10 million-15 million b/d output reduction would likely require the US also capping output, analysts said.

"Texas is going to have to cut production, I think it's kind of implied," OANDA senior market analyst Edward Moya said. "I doubt that you are going to see the Saudis and Russians give any market share right now, its clear that all sides need to contribute."

ClearView Energy Partners estimated that a full OPEC+ rollback from recent lows would imply 6.75 million b/d of cuts from current levels, but getting to 10 million b/d or beyond "would require deeper commitments from OPEC, non-OPEC producers and - perhaps - the United States."

"That would be unprecedented," said Kevin Book, ClearView managing director.

It is unclear by exactly what legal mechanism the US could cut production, but one avenue could be via the Texas Railroad Commission, which has the statutory authority to allocate production within the state.

Ryan Sitton, a member of the Texas Railroad Commission, has called for cooperation with OPEC, and in a tweet, said he had talked with Novak about a global supply cut pact of 10 million b/d and looked forward to talking with Saudi energy minister Prince Abdulaziz bin Salman soon.

"While we normally compete, we agreed that COVID-19 requires unprecedented level of international cooperation," Sitton said.

"An oil production cut agreement is likely to be reached quickly, but that might only provide a limited rally as demand devastation will not see any signs of relief for at least a couple more months," Moya said. "WTI crude will likely see sellers defend the $30/b."