In the market commentary from April 2, we mentioned that oil prices are looking for the bottom, and the US president was already talking to the leaders of Russia and Saudi Arabia about the conclusion of an agreement that would lead to a reduction in production and thus to a possible increase in oil prices. This is potentially a favorable situation because at the current price level the oil sector could collapse, and the budgets of state exporters of oil would shrink significantly.
We did not have to wait for a long time for further information, which also appeared on April 2 in the afternoon. President Donald Trump said via Twitter that he spoke to the Crown Prince of Saudi Arabia, who in turn spoke to Russian President Vladimir Putin on the issue of cutting oil production. Trump added that he expects countries to reduce supply by around 10 million barrels a day, and maybe much more. If this happens, it will be a great event for the oil and gas industry, added the US president. In another tweet, Donald Trump suggested that it could also be a cut of 15 million barrels a day. Saudi Arabia also asked for an extraordinary OPEC + meeting to reach an agreement on stabilizing oil prices.
After the information provided by Trump, WTI oil prices increased by almost 30 percent. However, for the price of oil to return to its state before the market collapsed, the price would have to increase by over 100%. The problem, however, is that the Kremlin authorities have cooled enthusiasm, saying that President Vladimir Putin did not talk to his Saudi counterpart and did not agree to limit production. This, in turn, caused that, on the morning of April 3, crude oil prices fell again by a few percents.
So if any production cuts were to occur, then most likely the United States would have to come to an agreement with Russia and Saudi Arabia, which could be difficult to implement.
Today (3 April) at 14:30 NFP (non-farm payrolls) will be published, with the unemployment rate. This data will cover the first month with the start of an epidemic in the United States. However, we have to wait for the later data revisions which then could show the full impact of the coronavirus on the labor market in March in the US.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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