Russia opposing OPEC deal to cut OPEC+ output by a further 1.5m b/d has triggered a market share war. Saudi Arabia has announced plans to boost oil output to 12.3m b/d in Apr'20 implying rise of 2.6m b/d over 9.7m b/d in Feb'20. Press reports suggest Saudi Aramco has tied up tankers for transportation of additional oil production to export markets. UAE plans to raise output by more than 1m b/d to over 4m b/d while Russia has indicated an output increase of 0.3m b/d. Thus, supply may rise by over 3.9m b/d in Apr’20 when global oil demand is likely to be flat or YoY lower. Saudi Arabia and UAE have also announced plans to expand production capacity by 1m b/d each to 13m b/d and 5m b/d, respectively, with no clarity on timeline to expand capacity.

We see the following two possible scenarios:

1. There is no OPEC+ output cut deal and therefore, after plunging, oil gradually recovers as US oil output starts declining and global demand starts recovering after corona pandemic is contained.

2. OPEC+ reaches a deal to cut output leading to oil price recovery. Ball is now in Russia's court with oil price well below US$42.4/bbl (likely to decline further), which it had indicated it was fine with. Thus, a plunge in oil prices may lead to Russia agreeing to an output cut deal.

We estimate global oil supply surplus of 2.96m b/d in Q1CY20 based on IEA's estimate of 2.5m b/d YoY decline in global demand. We estimate global supply surplus to expand to 4.94m b/d in Q2CY20 if Saudi Arabia, Russia and UAE raise output by over 3.9m b/d from Apr'20 and global oil demand is flat YoY (IEA's estimate). Such an unprecedented surge in global supply surplus is likely to trigger a plunge in WTI and Brent to US$20-25/bbl or lower. We estimate global oil supply surplus of 1.6-2.0m b/d in Q3-Q4CY20 assuming no OPEC+ deal to cut output, rise in Libya output by 0.5-1.0m b/d but non-OPEC production growth slowdown in Q3 and YoY fall in Q4.