Oil price got into the price slashing mode in one of the biggest black Friday collapses since OPEC declared a production war on U.S. producers Thanksgiving 2014. The market went into free fall mode as it was unclear that OPEC, or mainly Saudi Arabia, has the gumption to stand up to President Donald Trump and raise oil production. The market also must wonder if the Fed has the gumption to stand up to President Trump after he tweeted “So great that oil prices are falling (thank you President ). Add that, which is like a big Tax Cut, to our other good Economic news. Inflation down, are you listening Fed?”
Well, we know that the Saudis are afraid of the all-powerful Presidential tweet. Instead of shock and awe with a major cut, the Saudis are going to try to finesse the market with a big cut that does not feel like a big cut. Dow Jones reported that the Saudis and OPEC are considering ‘clandestine’ oil output cuts, announcing an extension of current cuts and quotas from 2016 into 2019. The Saudis and OPEC would just over comply and work to erase the fears of the so-called glut. They hope that will keep the President from tweeting and cut supply before the President figures it out. “It will be still a big cut but less pronounced,” a senior Saudi oil advisor said. So, in other words, while they signaled to the market a 1.4 million barrels a day cut the actual cut may be bigger, but we just will have to figure it out as we go.
Yet, if OPEC keeps it a secret, the market may punish them because it will appear that they don’t have the will to cut back. Bloomberg News says that the G20 may be where the actual amount of a production cut will be decided. “ Khalid Al-Falih and Alexander Novak, the Saudi and Russian energy ministers, are also scheduled to travel to Buenos Aires together with their principals, according to people familiar with their plans, asking not to be named because their agendas haven’t been disclosed yet. Their presence reinforces the impression that Saudi Arabia and Russia will try to reach a deal ahead of the OPEC meeting a few days later. It wouldn’t be the first time the two energy superpowers used a G20 to decide on oil policy.
