Thur/Friday Brent jumped from 22 to 30.5 thanks to Trumps tweets about fixing the crisis with an OPEC meeting.
Here is what we know:
-Oil supply is expected to beat demand by 30mbd (million barrels per day) in April
-Trump wants Saudi and Russia to cut 10mbd
-If Saudi and Russia cut 10mbd thats half their total output and twice what OPEC has ever cut
-Saudi and Russia are sick of doing the cuts while USA take their market share
-Saudi and Russia want USA to join in on the cuts
-It is illegal for USA or its companies to join forces to cut and raise prices intentionally
-Even if they cut 15mbd that will still leave 15mbd over supply
-Even if they cut 15mbd that will only buy an extra 6 weeks until world oil storage if full
So why did price jump so much? I think its a dead cat bounce or momentum traders. It will most likely crash again to 20 and once storage nears capacity even as low as 10
However there is a catch – only if the US and Saudi agree to cut the production together.
It is not Saudis who won’t play ball, but it is the US. If you look up data, the US shale companies have considerably increased their production when OPEC+ try to cut some production to inflate the crude oil prices in the last few years. In fact, Trump initially said he was committed to increase the US oil production and has boasted this as his achievement.
Now Trump administration is reportedly considering shutting down operations in Gulf of Mexico.
However, the real question is would this be enough to convince OPEC + Russia? I doubt it. Oil drills in Gulf of Mexico are already unprofitable at the given prices. Their message is clear – they want to destroy the US shale industry and give them some permanent damage so in the long run, they wouldn’t have to face the same oil war between oil producing nations.