US, WASHINGTON (ORDO NEWS) — The Trump administration intends to intervene in a price war between Saudi Arabia and Russia, and Texas regulators are considering whether to limit oil production for the first time in several decades. The reason is that US manufacturers are suffering from severe price collapse, The Wall Street Journal, USA reports.
The American leadership is considering diplomatic pressure on the Saudis to force them to cut production, as well as threatening Russian sanctions to stabilize prices. People familiar with the situation say that the United States took these measures after American oil companies demanded to intervene.
Meanwhile, the Texas Railroad Commission, which regulates oil production in this state, is exploring the possibility of restricting production in its subordinate territory, because some leaders of oil companies have asked it for help.
“We hoped the Trump administration would use this tool in negotiations with the Saudis, as well as with the Russians,” said Scott Sheffield, chief economist at Pioneer Natural Resources. He stated that he had a conversation a few days ago with Texas Governor Greg Abbott and regulators. “I’m trying to prevent the oil and gas sector from disappearing in the next year and a half,” Sheffield emphasized.
Office of Governor Abbott did not respond to a request for comment.
US oil prices rose slightly from their record low of 18 years, showing the largest percentage growth for the day. On Thursday, trading ended at more than $ 25 per barrel.
It is not yet clear whether these measures will be taken, however, the ideas voiced became a turning point in the US energy policy, since the companies that brought oil production to the United States to 13 million barrels a day and made their country a world leader, are under tremendous pressure.
“There has never been such a sharp drop in demand these days,” said Daniel Yergin, deputy director of IHS Markit, an analytic agency that won the Pulitzer Prize for his book, Oil Production: A World History of the Fight for Oil money and power. ” “The incident shows that the situation in the industry is desperate.”
Larger and more integrated oil companies, including Chevron and Exxon Mobile, do not support such measures and do not come up with such initiatives, informed sources say.
The Trump administration is looking for ways to generally help the US oil and gas industry, as dozens of manufacturers face bankruptcy in the face of a global pandemic. Oil prices in the US since the beginning of the year fell by 60%.
Once, President Trump heeded the advice of the oil industry and intervened in the affairs of the market, ordering the Department of Energy to start buying oil in order to replenish the strategic stock. On Thursday, the ministry announced the acceptance of applications for 30 million barrels. Then there will be a new replenishment, in order to eventually bring the total volume to 77 million barrels.
The administration and industry representatives consider it necessary to take diplomatic actions to force Russia and Saudi Arabia to abandon overstocking the markets with oil. This month, two countries pulled out of a pact to limit production and stabilize prices three years ago, which led Saudi Arabia to record production and cut prices in pursuit of declining global demand.
The United States would like the Saudis to return to the previous, reduced production volumes that existed prior to this decision, as an administration official familiar with the problem said. As part of its engagement with Saudi Arabia, the administration could threaten Russia with sanctions, thereby assuring the kingdom that its competitor in the person of Moscow would not benefit from a reduction in production in Saudi Arabia.
One way or another, sanctions against Russia are being worked out, although their details are still unknown, and Moscow’s retaliatory actions are also unknown.
However, Trump said on Thursday that he was “a little torn”, not knowing what to do with these countries and with oil. At the same time, the president said that he would intervene in the situation in the oil markets “in due time”.
According to him, low gas prices are beneficial for consumers, even if the collapse of the oil markets is harmful to companies. He also made it clear that Russia would suffer the most if futures prices remained low.
“We have great power in this situation. We are trying to find some middle ground, ”Trump said. “This will be a crushing blow for Russia, because if you look closely, its entire economy is built on that.”
The United States imposed sanctions against the Russian oil sector to deprive Russia of advanced oil production technologies in the most complex fields. They also blacklisted the head of the state-owned Rosneft company due to Russian intervention in Ukraine, and imposed sanctions against Rosneft’s trading divisions for taking Venezuelan oil despite the ban.
But the Trump White House, like the Obama administration, does not strike at Russian oil exports, fearing that this will lead to an escalation of diplomatic tension, which has already grown to a level that we have not seen since the Cold War. The US is also avoiding a massive ban on financial transactions with Rosneft due to unforeseen consequences for US companies and US allies from around the world who work with this state-owned company.
After the second-largest one-day fall since 1991, US base prices recovered slightly on Thursday. But even after such an increase, oil costs only 25.22 dollars per barrel, and this is an anti-record for the last 20 years.
Oil companies and their trading houses are meeting with representatives of the White House, the Ministry of Finance and the Ministry of Commerce, asking the Trump administration for help. Most often, there are requests to increase diplomatic pressure, as well as increase purchases for the strategic reserve, sources familiar with the content of such meetings say.
But companies have different goals and intentions, as well as different requirements for the response of the administration. Someone asks the administration to gather allies from the G7 to work on Saudi Arabia as a united front.
The executive chairman of the Continental Resources shale company and the head of the Energy Alliance, Harold Hamm, was one of those who personally called on government officials and members of Congress to exert diplomatic pressure. A spokeswoman for Hamm said she was not seeking to work with the Saudis and did not know anything about the administration’s persuasion strategy. He wants the administration to investigate whether Saudi Arabia, Russia and other countries are dumping the oil market to the detriment of American oil producers by selling so much oil at lower than market prices.
Oil company executives are also asking for help in Texas, asking the Texas Railroad Commission to limit production to the state, which it has not done since the 1970s.
According to Sheffield, he asks for a reduction in production by 500,000 barrels per day by the end of the year, for which each operator, with the exception of small mining companies, should reduce production by 10%. It is unclear how regulators will react to this, and whether they will take any measures, but officials are already studying the question of what will need to be done in this case.
The Texas Railroad Commission has become a model for the Organization of Petroleum Exporting Countries, which in recent decades has been trying to control oil prices around the world. It controls production at the most productive US field in the Perm basin, which is located in Texas and New Mexico.
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