Crude Soars, USO Halted After Algeria Says OPEC+ Production Cuts Could Reach 10MMb/d Crude has exploded higher, in the process triggering a limit up circuit breaker of the biggest oil ETF, the USO... ... following a report quoting the Algeria oil minister that OPEC+ production cuts could reach 10mmb/d when OPEC+ meets in its teleconference call tomorrow. Why this is news to the market is unclear, as a 10mmb/d cut has been discussed for the past few days as a potential outcome, one which however would require the US to participate in a coordinated global cut. The problem is that the as Ryan Sitton, the Texas Railroad Commissioner at the Texas Railroad Commission, who has quickly emerged as the coordinator behind any potential US production cuts, tweeted earlier that: I'm not participating in the OPEC+ call tmrw but if I were I'd say at least 20mbpd in cuts are needed & the US will cut at least 4mbpd in next 3 mos organically. If nothing is done inventories fill up in 2mos, at which point the world will need to cut as much as 30mbpd. I'm not participating in the OPEC+ call tmrw but if I were I'd say at least 20mbpd in cuts are needed & the US will cut at least 4mbpd in next 3 mos organically. If nothing is done inventories fill up in 2mos, at which point the world will need to cut as much as 30mbpd. https://twitter.com/hashtag/OOTT?src=hash&ref_src=twsrc%5Etfw!function(d,s,id){var js,fjs=d.getElementsByTagName(s)[0],p=/^http:/.test(d.location)?'http':'https';if(!d.getElementById(id)){js=d.createElement(s);js.id=id;js.src=p+"://platform.twitter.com/widgets.js";fjs.parentNode.insertBefore(js,fjs);}}(document,"script","twitter-wjs"); — ryansitton (@RyanSitton) https://twitter.com/RyanSitton/status/1247917022673088515?ref_src=twsrc%5Etfw!function(d,s,id){var js,fjs=d.getElementsByTagName(s)[0],p=/^http:/.test(d.location)?'http':'https';if(!d.getElementById(id)){js=d.createElement(s);js.id=id;js.src=p+"://platform.twitter.com/widgets.js";fjs.parentNode.insertBefore(js,fjs);}}(document,"script","twitter-wjs"); Separately, RBC reported, citing an unnamed person close to the Energy Ministry, that Russia is ready to cut 1.6mmb/d in production (equivalent to 14% decrease from 1Q levels). However, as before, non-OPEC countries would also be expected to take part in cuts include U.S. Brazil, Norway, Canada, Mexico, RBC says citing Energy Ministry. And, as Sitton explains that is unlikely to happen especially since the US won't even have a representative on the OPEC+ call. Finally, as Goldman's commodity analyst Damien Couravlin writes, even if a deal is reached and 10mmb/d in production is removed, this would not be nearly enough, to wit: While the US announcement of production cuts last week was premature, many countries have since commented on their desire to participate, and we believe that a coordinated cut is now more likely than not. Assuming that a deal is reached, which is in no way certain, the key question will be whether its size and timing will improve global oil balances sufficiently to support prices above current levels. Our updated 2020 global oil balance suggests that a 10 mb/d headline cut (for an effective 6.5 mb/d cut in production) would not be sufficient, still requiring an additional 4 mb/d of necessary price induced shut-ins. While this argues for a larger headline cut of close to 15 mb/d, we believe this would be much harder to achieve, since the incremental burden would likely need to fall on Saudi Arabia to be effective. Further, our price modeling suggests that Brent prices near $35/BBL already reflect such an outcome, with last week’s rally having brought crude prices to levels that likely slow the large-scale US production drop that are necessary to a deal in the first place. Net, while the prospect of a deal can support prices in coming days, we believe this support will soon give way to lower prices with downside risk to our near-term WTI $20/BBL forecast. Ultimately, the size of the demand shock is simply too large for a coordinated supply cut, setting the stage for a severe rebalancing. While the path of the demand normalization will remain key to the subsequent price recovery, lasting supply cuts will matter too and could create upside risks to our $40/BBL October Brent forecast. In short, anyone hoping for the spike in oil to stick will likely be disappointed. Tyler Durden Wed, 04/08/2020 - 14:29