Saudis want to cut production for 90 days. Of course they do. Cutting production is a Straw Man argument. It's the Exports that put Supply on the market.

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Oil industry is cutting production around the world now.  They have to , the storage is filling up.

Which company has more storage around the world than any other.  It is Saudi Aramco.  They have huge so storage capacity in many locations, Saudi Arabia, China, Antwerp, South Africa, Port Arthur,Tx, etc, etc, etc.  Saudi Arabia has it's own fleet of tankers plus they leased 32 VLCC tankers after Russia turned down the last cut deal.  All their own fleet and plus the newly leased fleet (32 VLCCs) are full of Saudi oil.  

Saudis propose a limited time frame of 90 days to persuade U.S. to participate.  Don't be fooled.  If prices still low in 90 days the U.S. would be hard pressed to say no to an extention.  Then when prices drop again the U.S. will be threatened again if they do not comply.  In other words once you get in you can never get out.  

Side Note: It is reported Saudis have sent 13 mm bbls on it way to U.S.  Former Secretary of Energy Perry is asking the President stop all imports for 90 days.  Sounds like a good idea to me. Turn those Saudi tankers around.

The 90 day production cut is just a gift to Saudi Arabia and a few other majors.  The small producers and independents that don't have the pipeline or storage capacity lose. 

Rest assured Saudi Arabia will sell as much oil or more than they did before Corvid.  They will be more aggressive than ever with predatory pricing to fill as much of what little storage capacity remains.  The 30mm bbls/day surplus in April is now a consensus.  The Saudi tanker fleet and leased tanker fleet(32) are loaded and heading to ports around the world , including the United States .  .  .  .  .   ALL THEY NEED NOW IS THE WORLD TO FALL FOR THEIR 90 DAY PRODUCTION CUT SCAM. 

IT'S THE EXPORTS STUPID.  PRODUCTION CUTS ARE JUST A SAUDI CON GAME.

WITH SAUDIS OWN FLEET PLUS LEASING 32 VLCC TANKERS ARAMCO WILL HAVE TANKERS OF OIL SITTING OFFSHORE ALL THE CONSUMER COUNTRIES PORTS READY TO UNDERCUT ANY COMPETITIVE BID.  

WHEN ONE SAUDI TANKER INLOAFS THERE WILL BE ANOTHER TANKER SITTING THERE TO UNDERBID YOU FOR THE NEXT UNLOADING.

It's a race to fill up the only remaining spare capacity with their oil.

Why should Saudis be allowed to sell their new goal of 10 mm bbls day of exports , more than double the next closest producer.

Saudi Aramco produced avg 10mm bbls/day in 2018.  Saudi Aramco produced avg 10 mm bbls/day 2019.  

Shale producers should watch what they hope for.  I guess you have to try something. Last week the Midland West Texas price was $12 bbl.  If you had pipeline and storage capacity you made a killing.   

U.S. oil from Super majors to independents are already drastically cutting production.  Just the "talk" of cuts increased prices so maybe actually cuts might help.  I sense we are nearing the end of where rumors and cut announcements move oil markets.  We just might start to trade on fundementals again.

If the industry wants any chance of supporting prices they have to curb export sales.  That would have to for example include sales to China  of Saudi oil inventory stored in their tanks in China. 

It's the Export sales . . .  Not production. 

Production cuts are really a game of Three Card Monty. The answer is Exports.

 

 

 

Edited April 7, 2020 by BLA