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Saudi Arabia may seek US, Canada to be part of oil output cut

Oil&Gas Materials 3 April 2020 11:00 (UTC +04:00)
Saudi Arabia may seek US, Canada to be part of oil output cut

BAKU, Azerbaijan, April 3

By Leman Zeynalova - Trend:

Saudi Arabia may seek the US and Canada to be a part of oil output cut, Trend reports with reference to UK-based Capital Economics research and consulting company.

“Oil prices have surged by 20 percent so far today, after US President Donald Trump tweeted that he expected Saudi Arabia and Russia to agree to an oil production cut of up to 15 million barrels per day. Shortly afterwards, the Kingdom released a statement stating that it had called for an emergency OPEC+ meeting,” the company said in its report.

Despite these headlines, Capital Economics remains sceptical that a deal to cut output will materialize.

“Saudi Arabia's press statement said that it "aims to reach a fair deal to stabilise the oil market” (our emphasis), which implies that the Kingdom is only going to cut output if Russia also agrees to do so by a proportionate amount. There is even a possibility that Saudi Arabia would seek non-OPEC+ producers, such as the US and Canada, to be part of a co-ordinated output cut,” said the company.

From the Saudi perspective, they are in a relatively good position financially (see our Middle East Economics Weekly sent to clients today) to weather low oil prices for some time, particularly if it means that higher-cost producers elsewhere are forced to close up shop, reads the report.

“There are already signs of strain in the US shale industry, with the latest data showing falls in drilling activity and the first bankruptcy of a medium-sized shale firm (Whiting Petroleum).”

“But even if we are wrong and Russia and Saudi Arabia do agree to swingeing output cuts, we only expect lower supply to put a floor under prices. The severity of the ongoing virus-related collapse in demand means that we would retain our forecast of oil prices trading in a range of between $20-30 per barrel in the second quarter.”

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Follow the author on Twitter: @Lyaman_Zeyn

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