U.S. President Donald Trump on Thursday said he had spoken to Saudi Crown Prince Mohammed bin Salman and that he expects Saudi Arabia and Russia to cut oil output by 10 million to 15 million barrels per day, as the two countries signaled willingness to make a deal.
A cut of that size would be unprecedented for the Organization of the Petroleum Exporting Countries (OPEC) and its allies, which include Russia. From late 2016 to early this year, those nations had combined for several rounds of production curbs, including a December deal to cut output by 1.7 million bpd.
That deal fell apart in early March after the Russians and Saudis could not come to an agreement to extend those cuts, and markets cratered, with Brent and U.S. crude losing about 55 per cent of their value in that month.
The U.S. crude price rallied up to about $25 a barrel on Trump's tweet.
Bob Watson, CEO of Abraxas Petroleum in San Antonia, reacted with skepticism.
"I don't think this does anything in the near term. Our pipelines have told us they don't have room for our barrels." Within eight weeks there will be major issues as production outstrips storage capacity, he said.
"If I wasn't fully hedged, I would have taken advantage of this opportunity to put more hedges in place, but this just doesn't change things. If our oversupply is so big, cutting 15 million barrels won't help in the near-term.
"I don't see any way other than letting the market drive prices down. Even the government can't fix this situation."
Gene McGillian, vice-president of market research at Tradition Energy in Stamford, Connecticut says any sort of deal will be good news if they can stick to it.
"The question will come down to, will they be able to agree to something? It's taken couple of weeks of Brent at $25 and WTI at $20 and it seems as if Russians are more approachable than they were a month ago. I'm a bit surprised by that. We'll have to wait and watch.
"Putin and President Trump were having discussions and now it seems there is willingness on the part of Russians to go along with Saudi suggestions. The proof will be in pudding of course. The market has dropped so significantly that this kind of turnaround is often times the case when we see news like this. Whether we return to normalcy depends on what the OPEC+ meeting does or whether it ends the same way the last meeting did."
Bob Yawger, director of futures at Mizhuo in New York says there's no way the deal can be what Trump claims it is.
"That's one of the most ridiculous things I've ever heard in my entire life. First of all, between the two of them, they produce 23 million barrels a day of crude oil. So you're trying to tell me that these guys are going to cut 10 million barrels from production?"