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Donald Trump has sent oil prices and petro-currencies soaring after saying that he hoped Saudi Arabia and Russia would agree to oil production cuts of 10-15m barrels.

Speaking on twitter and to CNBC, the US president said that he had just spoken to the crown prince of Saudi Arabia, who had spoken with the Russian President Vladamir Putin, and that he expected and hoped that the two major oil producers would be cutting back “approximately 10 Million Barrels, and maybe substantially more”.

Russian officials were quick to deny that Putin and the crown prince of Saudi Arabia had spoken. The Dow Jones news wire quickly reported that Saudi Arabia would be expecting other oil producing nations including the US, Canada, Mexico, and others to join any potential production cuts. This is an unprecedented bid for these free-market economies to join OPEC in cartel behavior to restrict supply.

Although at this point it seems foolish to rule out any outcome, the prospect of free-market economies like the US and Canada joining OPEC in cartel behavior to restrict supply and boost prices seems slim.

Trump is reportedly meeting oil industry leaders tomorrow, and it is unclear how he hopes to persuade them to reduce production. In the event he succeeds, it will be up to Saudi Arabia and Russia to decide if whatever is offered is enough to bury the hatchet and end their ongoing price war.

Crude oil prices are higher on the news, although the major indices have significantly pared back the sharp initial rallies seen in the wake of Trump’s tweet. The response in oil-linked currencies has not yet been as impressive as the crude rally, although if this news amounts to actual production cuts this is likely to change.

 

Author: Ranko Berich, Head of Market Analysis

 

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