This week is certain to bring more pain to oil markets as the OPEC+ production cut deal ends April 1 and Saudi Arabia readies more discounted oil on April 5.
As Russia energy minister Alexander Novak told reporters after the collapse of the OPEC+ deal in Vienna on March 6, member countries will be able to produce at will with no limits starting April 1.
Two days after Novak’s comments, Saudi Arabia significantly cut its Official Selling Price (OSP) and launched the price war with Russia surprising even Russian officials who were lobbying for the end of the production cut deal.
OPEC+ members are now free to produce an extra 2.1 million barrels per day (b/d) that was previously capped under the agreement, with Saudi Arabia contributing the lion’s share of the cuts.
Saudi Arabia has announced that it will increase production from about 9.7 million b/d to 12 million barrels starting in April. This increased level of production would mark a new record as previous levels reached only 11.2 million b/d.
The other important event to watch closely is the release of the Saudi OSP on April 5 when Aramco likely will announce even greater discounts for its light crude, doubling down on its price war with Russia. US officials are closely watching the Saudi OSP, and we view it is a catalyst for more aggressive US intervention.
On Monday, President Trump called the Saudi-Russia price war “crazy” adding “I never thought I’d be saying that maybe we have to have an oil (price) increase, because we do.”
Trump and Russian President Vladimir Putin spoke by phone on Monday and agreed about the necessity of “stability” in oil markets and directed their energy ministers to take the lead to discuss potential areas for cooperation. While oil markets welcomed the Trump-Putin call, we would caution about reading too much into it.
To date, the Administration has provided some running room for Saudi Arabia but is under increasing pressure from shale producers and powerful members of Congress to get tough with Riyadh.
As we said in last week’s note, the Administration will not be able to sit on the sidelines when prices fall further. At the very least, you should expect to see increased Trump attention to the topic, private calls and of course Trump tweets to apply pressure or encourage some kind of action.
