Crude prices soared Thursday after President Trump said he expected Saudi Arabia and Russia would agree to new oil-production cuts.
Brent crude oil, the global benchmark, rose 35% to $33.10 a barrel in one of its sharpest ever rallies. West Texas Intermediate futures, the bellwether of U.S. prices, leapt 26.1% to $25.62 a barrel. Both benchmarks remain more than 50% down so far in 2020 with coronavirus-driven lockdowns having severely reduced oil demand.
Mr. Trump said Thursday he had spoken with Crown Prince Mohammed bin Salman of Saudi Arabia, who had communicated with Russia’s President Vladimir Putin. “I expect [and] hope that they will be cutting back approximately 10 Million Barrels, and maybe substantially more,” Mr. Trump said in a tweet.
Mr. Trump’s remarks were light on detail and “there’s a lot of questions here: is that 10 million barrels a day, or overall? And is that five from Russia and Saudi Arabia or is OPEC involved?” said Ellen Wald, president of Transversal Consulting, an energy and geopolitics advisory firm. “Nobody knows, but it’s definitely a very positive sign for alleviating the oil glut.”
Following President Trump’s communication, Saudi Arabia called for an emergency OPEC+ meeting, according to state media in Riyadh, in a signal that the oil-price war that has contributed to a historic collapse in crude prices may be close to ending.
Oil prices were already rallying before Mr. Trump’s comments, after he said Wednesday that he was confident Saudi Arabia and Russia would resolve their dispute over oil output and prices in the coming days.
Russian President Vladimir Putin said Wednesday that oil producers should cooperate to mitigate the market decline, adding that Moscow is discussing the condition of the oil market with Washington and the Organization of the Petroleum Exporting Countries.
Mr. Trump is also set to meet Friday with the heads of some of the largest U.S. oil companies to discuss measures to help the industry as it fights for survival. The chief executives of Exxon Mobil Corp. and Chevron Corp. are expected to attend.
Gazprom Neft's oil refinery in Omsk, Russia. President Vladimir Putin said Wednesday that oil producers should cooperate to mitigate the market decline.
Photo: alexey malgavko/ReutersThe main driver of oil’s rally had been “the announcement by Trump telling the world ‘we’ve been talking with the Russians and the Saudis and he’s quite proud of these oil diplomacy efforts,” said Bjørnar Tonhaugen, head of oil markets at consulting firm Rystad Energy. “He’s trying to save the U.S. industry from collapse.”
The spat began in early March, after Saudi-led OPEC and a group of other oil-producing countries dominated by Russia failed to deepen production cuts by 1.5 million barrels.
But that amount pales in comparison with the size of the collapse in oil demand over recent months, with government-mandated lockdowns around the globe as a result of the coronavirus pandemic grounding flights and keeping citizens in their homes.
Also boosting prices were reports that China is implementing plans to buy up cheap oil to fill its strategic petroleum reserves. Beijing may also start filling its commercial stocks as well, according to Bloomberg.
The world’s largest oil-consuming nation has close to one billion barrels’ worth of storage space, and could take on an extra 100 million barrels over the course of this year, according to data from Rystad Energy.
“It’s given some support to prices today,” said Ehsan Khoman, head of Middle East and North African research and strategy at MUFG. With Saudi Aramco set to release its May official selling prices in the coming days, “the question now becomes whether this is going to mean the Chinese filling up to the brim and locking in prices for May as well as April.”
Oil-market watchers were still skeptical about the impact of any end to the price war given the impact of the lockdowns on demand.
“I don’t think this meeting significantly changes things, the oil market is still way out of balance and oil stocks are still rising at an unprecedented rate,” said Spencer Welch, director of oil markets at IHS Markit. “Producers are going to have to involuntarily cut production because there’s going to be nowhere for the oil to go.”
Also attending the White House meeting will be Continental Resources Inc. CEO Harold Hamm, who has called for the Trump administration to intervene in the Saudi-Russian price war. Other shale companies have called on state regulators to enforce production cuts in Texas.
The two periods of the sharpest oil inventory builds in recent years were in early 2005 and early 2015, when stocks rose by around 400 million barrels, according to IHS Markit data. But IHS expects global oil inventories to rise by three times that amount in the first half of this year.
“Nothing like this has ever happened before or hit the oil market like this and I don’t think a supply cut by a couple of companies will be enough,” Mr. Welch added.
Oil storage around the world is beginning to fill up, prompting some companies to enact production cuts. Brazilian state-owned giant Petrobras last week became one of the first major companies to announce such reductions.
Even with Thursday’s rally, oil prices remain below the cost of production for the U.S., Canada and Russia, and strategists are forecasting further declines from here.
Crude will extend its plunge in the coming months, and Brent and WTI could sink as low as $15.80 and $13.30 a barrel, respectively, as the world’s crude glut continues to build, according to Japanese bank MUFG.
The prices of some grades—such as landlocked crudes in the U.S. and Canada subject to pipeline bottlenecks—could even turn negative, said MUFG’s Mr. Khoman.
Write to David Hodari at David.Hodari@dowjones.com
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