Saudi Arabia Proposes OPEC+ Emergency Meeting... Oil Prices Surge on Expectations of 15 Million Barrel Production Cut

[Asia Economy Reporter Naju-seok] International oil prices surged as expectations for production cuts by oil-producing countries grew. Following U.S. President Donald Trump's mention of possible production cuts by Saudi Arabia and Russia, Saudi Arabia, which had waged an 'oil price war,' demanded an emergency meeting of 'OPEC+,' including the Organization of the Petroleum Exporting Countries (OPEC) and non-member oil-producing countries. There are even forecasts that the daily production cut could reach 15 million barrels.

On the 2nd (local time), The Wall Street Journal (WSJ) reported that the Saudi government proposed negotiations among oil-producing countries to discuss production cuts. A Saudi government official stated, "We have requested an emergency meeting among OPEC+ and other countries aiming for a fair agreement to stabilize the oil market."

Earlier, President Trump tweeted, "I heard from Crown Prince Mohammed bin Salman of Saudi Arabia that he spoke with Russian President Vladimir Putin," adding, "Both sides are expected to cut production by more than 10 million barrels." He further said, "The cut could be more than 15 million barrels," calling it "good news for everyone."

Despite the decrease in oil demand caused by the novel coronavirus disease (COVID-19), Saudi Arabia, which had announced plans to increase production, revealed its intention to negotiate production cuts, causing international oil prices to surge. On the New York Mercantile Exchange (NYMEX), West Texas Intermediate (WTI) crude oil for May delivery closed at $25.32, up 24.67% ($5.01) from the previous day. The WTI price increase even reached 35% intraday, marking an all-time high.

Last month, Saudi Arabia and Russia discussed reducing oil production in response to decreased demand due to COVID-19 at the OPEC+ meeting held in Vienna, Austria. However, when Russia opposed production cuts, Saudi Arabia declared an oil price war and increased supply. As a result of the oil price war between Saudi Arabia and Russia, WTI plummeted to about one-third of its level at the beginning of the year, falling below $20 for the first time in 18 years.

The United States is also expected to participate in the production cut negotiations. On the same day, Ryan Sitton, chairman of the Texas Railroad Commission, said he discussed production cuts with Energy Minister Alexander Novak. The Texas Railroad Commission is the body that determines Texas oil production, and it is currently reviewing production cuts at the request of U.S. companies. Due to the plunge in international oil prices, the U.S. shale industry, which has relatively high extraction costs, has seen its first bankruptcy due to deteriorating profitability.