Oil Crashes After Saudis Propose Smaller Than Expected Production Cut

As if plunging equity futures were not enough for traders to worry about this morning, in the past two hours oil, which had rebounded heading into this week's 2-day OPEC meeting, tumbled sharply, dropping as much as 5%, with WTI sliding as low as $50.23 - less than a dollar from this year's low of $49.41 - from above $53/barrel earlier in the session as Saudi Arabia said producers were working towards a deal to cut output that could fall short of market expectations. Brent crude fell 4.2% to $58.99 a barrel.

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Saudi energy minister Khalid al-Falih told reporters ahead of today's critical closed-door meeting of oil ministers in Vienna that OPEC and allies outside of the cartel including Russia were still working towards reaching an agreement by Friday.

Falih said Saudi Arabia’s preference was for a "sufficient cut but not overly large", adding that a 1 million barrels a day "would be adequate", but noting that "there is no deal yet." He may have been remembering Trump's tweet from yesterday, and realizing that if the US president gets angry with his boss, and de facto real OPEC leader, Crown Prince MbS, things could get much worse.

The kingdom also called for contributions from all countries, saying that the deal should be "fair and equitable" and should include Russia, as well as countries that were exempt from previous deals, such as Libya and Nigeria.

Quoted by the FT, when asked if a pact might not be reached, he said all options were on the table, but added that Russia, the largest oil producer in OPEC+ but slightly behind the US, and seen as crucial to reaching a deal, had “made a promise” to cut.

Oil has crashed more than 30% since its October peak as the US issued sanctions waivers to big buyers of Iranian oil, while production from global producers surged. The planned output cuts come despite pressure from US president Donald Trump, who has advocated for high levels of production, describing lower oil prices as a “tax cut” for consumers.

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