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BHP and Santos on watch after President Trump puts a rocket under oil prices

It looks set to be a positive end to the week for Australian energy producers including BHP Group Ltd (ASX: BHP), Oil Search Limited (ASX: OSH), Santos Ltd (ASX: STO), and Woodside Petroleum Limited (ASX: WPL).

Overnight the price of crude oil rocketed higher after President Trump suggested that Saudi Arabia and Russia will soon end their price war and cut production.

According to Bloomberg, the WTI crude oil price is up 24.5% to US$25.32 a barrel and the Brent crude oil price is up 21% to US$29.94 a barrel.

This was the biggest one-day gain by WTI crude oil since records began.

What did Trump say?

In an interview with CNBC on Thursday, President Donald Trump told the media outlet that he expects Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman to cut oil production by 10 million to 15 million barrels.

Though, it is unclear over what timeframe President Trump is talking. 10 million to 15 million barrels of oil is a significant number if it relates to daily production, but less so if it is annual production.

For example, on Wednesday Saudi Arabia’s crude supply rose to a record of more than 12 million barrels per day. This was despite a plunge in demand triggered by the coronavirus outbreak.

Whatever the production cut ends up being, analysts at RBC believe it will come at a cost to the United States.

RBC’s commodity strategist Helima Croft told CNBC: “What we know is the Saudis were looking at this through the lens of the financial crisis and believe they needed a response commensurate to 08/09. The question is can Trump put together the package that gets them to do that? We know there’s an emergency OPEC meeting. They will be looking for signs that U.S. production will be curtailed. They will be watching what happens with the Texas Railroad Commission and with Canada.”

Eurasia Group analyst Ayham Kamel agrees. Kamel suggested that the most likely outcome would be a “large OPEC+ supply cut that is complimented by a U.S. cut.”

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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