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Oil Spikes After Saudis Unexpectedly Cut Output Unilaterally By 1 Million b/d

Courtesy of ZeroHedge View original post here.

Just hours after Saudi Arabia, which is seemingly running out of money faster than most had expected, announced broad government spending cuts including suspending the cost of living allowance amid broad austerity measures for about $26.6 billion and a tripling of the value-added tax as part of measures aimed to shore up state finances, which have been battered by low oil prices and the coronavirus, Bloomberg reported that Saudi Arabia will unilaterally cut its crude oil output by 1MMb/d in June.

As Bloomberg adds, Aramco has also been instructed to cut May production if possible. That’s a drop from the 8.5m barrels per day production target for May and June (as stipulated in the most recent OPEC+ deal).

In kneejerk reaction, WTI crude erased earlier losses, jumping as much as 3.4% to $25.58 a barrel…

while Brent also erased earlier gains to reach an intraday high of $31.47 a barrel

While the cut was immediately seen as bullish, for Saudi Arabia to engage in such an unprecedented unilateral emergency cut, it would suggest that demand is well below optimistic V-shaped rebound expectations.

Meanwhile, as oil prices rebound, the question is at what price will shale producers dive right back in and restart output as they seek to steal even more market share from Saudi Arabia, whose "flood the world with oil" gambit is once again backfiring, just like it did in 2014. Indeed, as Energy Intel's Amena Bakr notes, "Iraq isn't cutting its share of the Opec plus cuts and Saudi Arabia is now cutting an extra 1 million bpd….deja vu anyone?"


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