Trump-Mediated Oil Deal Splits Large, Small Producers
On April 12, Saudi Arabia, Russia and the United States agreed to the largest-ever oil production cuts in a deal brokered by President Donald Trump.
The deal was intended to bring an end to a punishing, month-long price war between Saudi Arabia and Russia that had taken global oil prices to new lows and threatened dozens of small American frackers with unsustainable losses.On top of that came sharply reduced global demand for oil and gas due to the coronavirus crisis and its lockdowns. Before the COVID-19 crisis, global demand was about 100 million barrels per day. That demand has plunged by at least 35 percent. The American oil benchmark price was about $23 a barrel on Sunday night. Six years ago it stood at $100 a barrel.
The deal that was agreed to by Russia, the Organization of Petroleum Exporting Countries (OPEC), led by Saudi Arabia, and some non-OPEC producers in a group called OPEC Plus will cut production by 9.7 million barrels in May and June, or about 10 percent of global production. Experts have said the agreed-to cuts do not come close to the levels needed to stabilize the oil markets. Non-OPEC Plus countries like Canada, Norway and the United States have also been cutting production on their own.
According to the New York Times, the deal resulted from a week of telephone calls between Trump, Russian President Vladimir Putin and Saudi ruler Mohammed bin Salman, known as MBS. Trump tweeted that the deal “will save hundreds of thousands of energy jobs in the United States.”
Mexico almost scuttled the deal when it refused to cut its allotted share of 400,000 barrels a day, committing to cut only 100,000 barrels. Trump intervened, promising unspecified support to Mexico.
While small U.S. producers have gotten more efficient and lowered their break-even price point at existing wells over the last several years, the price war and virus crisis have pushed many of them below break-even. Many were already carrying heavy debt loads.
The break-even point for drilling new wells is much higher, and as prices fall, new drilling and exploration shut down before production at existing wells.
Cuts Divide Producers
Meanwhile, according to Bloomberg News, state oil regulators in Texas and Oklahoma were considering their own production cuts,the first considered since the 1970s.
Pioneer Natural Resources Company and Parsley Energy Inc. asked the Texas Railroad Commission (the state’s oil regulator) to cut the state’s output by 20 percent, saying the free market can’t cope with the economic downturn.
Bloomberg reported that the debate—by videoconference, to comply with social distancing rules—included discussion by more than 50 people, evenly split between supporters and opponents of setting production limits. About 20,000 listeners tuned in.
Smaller producers generally favored cuts, but oil giants and trade associations argued that the market can take care of production cutbacks on its own.
The oil industry has already announced spending cuts of about $50 billion, not including privately owned companies that don’t have to report their finances, according to Todd Staples, president of the Texas Oil and Gas Association. Experts say those cuts will likely lead to production cuts of 1.8 million barrels a day. Texas, which produced about 5.3 million barrels of crude a day in January, accounts for about 40 percent of U.S. production.
The three-member Texas Railroad Commission will make a decision this week.
The Oklahoma Corporation Commission is scheduled to hold its own hearing on production cuts May 11 after getting a request from a group of small producers.According to Bloomberg, both Texas and Oklahoma used to set allowable levels of oil production in their states in a system known as pro-rationing. Oklahoma allowed that system to lapse in the 1950s, and Texas did so in 1973.
The American Petroleum Institute, a national trade group, opposes direct intervention by the federal or state governments and testified against the proposal in Texas.
“A Texas quota system imitating OPEC is not the answer to the challenges facing the industry and would only penalize the most efficient producers and create long-term negative consequences for American energy leadership,” API President Mike Sommers said in a statement.
More Coronavirus-related stories in the WJ:
April 20 issue:
Blessey Marine Video Encourages Team During COVID-19
AWO Webinar On COVID-19 Cleaning Practices Draws Intense Interest
COVID-19 Response: How Ergon Marine Is Protecting Its Team And Customers
Port Nola Launches Digital Learning Resources For Out-Of-School Students
Remembering Longtime New Orleans Maritime Industry Leader Jimmy Amoss
Trump-Mediated Oil Deal Splits Large, Small Producers
Seamen’s Church Institute Launches #stayhomeandknit
Trump Floats Guidelines For States To End Lockdowns
WJ Editorial: Inland Ports Shouldering Through Virus Crisis
April 13 issue:
Seamen’s Church Institute Adapts To Continue Ministries
Best Practices And Liability In Time Of COVID-19
Trump Promises ‘Big Package On Infrastructure’ Soon
WJ Editorial: Barge Industry Is Used To Rising To Challenges
April 6 issue:
Corps Leads Effort To Construct Alternate Care Facilities In COVID-19 Response
WJ Editorial: Lock and Dam Construction Would Help Revive Economy
Crew Change Protocols On MKARNS Updated
March 30 issue (online only):
ACBL Hunkers Down, Keeps Cargoes Moving
WJ Editorial: Amid Virus Crisis, Let’s Not Forget High Water
$2 Trillion Coronavirus Relief Bill Goes To House
March 23 issue:
As COVID-19 Grips Country, Maritime Industry Keeps Moving With Precautions
Publishers Note: This Too Shall Pass, Right?
WJ Editorial: Towboats Will Help Keep Economy Moving
Washington Waves: Battling Coronavirus On Multiple Fronts
AWO Requests Subchapter M Inspection Suspension During Coronavirus Emergency
NMC Extends Document Deadlines, Closes Regional Exam Centers
Agency Guidance: Maritime Workers Are Critical
Coping With Coronavirus In The Marine Industry
PVA Seeks Administration Help As Two Cruise Lines Suspend Operations
Coronavirus Delays Chinese Investors’ Visit To Kentucky Fisheries Park
March 16 Issue:
Coronavirus Cancels Events, Cruise Vessels Ponder Ban
Virus Panic, Saudi Move Affect Oil Markets
Trump Imposes Travel Ban From Europe
March 9 issue:
Infrastructure Spending Eyed As Economic Stimulus
March 2 issue:
WJ Editorial: Coronavirus Hits Global Shipping
Pence To Lead Coronavirus Task Force
February 17 issue:
February 10 issue:
Ports, Maritime Industry Keep Careful Watch For Coronavirus
China Lifts Tariffs On $75 Billion Of U.S. Goods
