Oil analysts sceptical about Saudi-Russian 'deal'

Reuters
Updated ·3 min read
FILE PHOTO: A worker wears a protective mask, following an outbreak of coronavirus, at Nahr Bin Umar oil field, north of Basra

(Reuters) - U.S. President Donald Trump is stoking the possibility of Saudi Arabia and Russia negotiating oil output cuts as the coronavirus outbreak hammers demand.

Trump said on Thursday he had brokered a deal between the two, but made no offer to reduce U.S. output, and benchmark Brent oil futures surged 21% in a record one-day rise.

Below are analysts' views (in alphabetical order):

COMMERZBANK

* "Saudi Arabia will probably demand big cuts in production from both Russia and the U.S. (whose oil industry currently appears hardest hit by the crisis)

* Any (voluntary) cut of 10 million bpd or more will be difficult to implement, and as such is illusory."

* "In the U.S., it may only be the state of Texas that would have a legal basis for reducing output to order."

* "Although the discussions about possible cooperation between the oil-producing countries may be able to support the oil price at the moment, we believe that the reality on the oil market is much more gloomy."

GOLDMAN SACHS

* "Given the size of the current demand hit of 26 million barrels per day (bpd) and growing signs that isolation policies are being extended globally, such output cuts are in our view necessary rather than voluntary."

* A deal is "still a long way off and even if it is reached, its implementation would be "delayed and gradual" and "the impact of the cut wouldn't be material for a number of weeks at least.

* Even cuts of 5 million bpd from levels in the first quarter of 2020 by core OPEC members and 2 million bpd from the U.S. lower-48 region and "accelerated declines elsewhere" would not change a likely global oil surplus of 9 million bpd this quarter.

JBC ENERGY

* "It will take time to convene the meeting and there is no guarantee that it will bring any success, at any rate not to the extent that Trump claims."

* "A 10 million bpd cut would require substantial non-OPEC participation."

* Fully addressing the demand fall "is a Herculean task that has very little chance of working unless Saudi Arabia and Russia shut in their entire crude production — an extremely unlikely scenario."

RYSTAD ENERGY, BJORNAR TONHAUGEN, HEAD OF OIL MARKETS

* Markets are right to treat the U.S. President’s tweets and statements regarding 10 or 15 million bpd in production cuts "with scepticism".

* "The question for the oil market right now is whether we will have 10 million bpd of voluntary production cuts in the second quarter or forced production cuts. That could be due to full supply chains of oil, where shut-ins are forced, as there will be nowhere to physically put the oil after it leaves the ground."

STANDARD CHARTERED, PAUL HORSNELL AND EMILY ASHFORD, ANALYSTS

* "We do not believe an end to the oil price war is imminent; the road to agreement may be a long one ...Even if a deal could be done today, our forecasts imply that storage will still fill to maximum in May."

* "Our estimate of global excess supply in April is 21.8 million bpd and we expect the May excess to be 19.5 million bpd.

* Even if Trump's putative deal could be done today, and came in at a 15 million bpd in May, the inventory build from March to end-May in our model would be 1.15 billion barrels, enough to take spare storage close to maximum."

UBS

* "We remain sceptical that producers can credibly commit to such large cuts, and expect prices to come under pressure again."

* "The challenge in cutting is that Saudi Arabia refuses to carry the cut burden alone; it expects OPEC and its allies (OPEC+) to help, as well as other countries like the U.S. and Canada."

* "We see oil demand now down by about 20 million bpd y/y in Q2.

(Reporting by Arpan Varghese in Bengaluru; editing by Jason Neely)