It was a month ago, in combination with the global panic over the coronavirus, that the bottom fell out of the global crude oil market. A price war between Russia and OPEC, led by Saudi Arabia, crashed the price to under $30 a barrel. Some American gas stations saw gasoline selling for less than $1.90. Now, with encouragement and mediation by the U.S. government, there is an attempt to return profits to the oil industry.
These talks come amid another price drop in the market, with West Texas Intermediate Futures falling to $26.08, or a 7.97% drop. Brent Crude, the international standard, has settled at $33.05.
Last week, President Donald Trump said that he had spoken to Saudi Crown Prince Muhammad bin Salman, and that the government had also put out feelings to Russian President Vladimir Putin. “Just spoke to my friend MBS (Crown Prince) of Saudi Arabia, who spoke with President Putin of Russia, & I expect & hope that they will be cutting back approximately 10 Million Barrels, and maybe substantially more which, if it happens, will be GREAT for the oil & gas industry!” he tweeted.
The Saudis had originally been angling for a 15-million-barrel per day cut, but Russia appears unwilling to budge past ten. Ten million barrels represents 10% of the world’s global oil output, and far exceeds the 1.5 million per day that Russia originally rejected in early March. A meeting between the two government’s representatives is expected on Thursday, although most observers don’t believe it will be productive.
U.S. oil producers are still unsure how to respond to the price war, or how involved they should be in its resolution. As people are made to stay at home due to the coronavirus and enforced social distancing guidelines, most travel has ground to a halt. Global transportation, fueled by oil, has been left at a standstill. This has caused a lack of demand on top of what business leaders are terming an over-supply problem.
American oil executives met with President Trump last Friday, a meeting that produced no plan of action. Trump appeared to place great trust in the executives to find their own path. “These are great companies and they’ll figure it out,” the president said at a briefing. “It’s a free market, they’ll figure it out.” Despite the market bromide, Trump added that tariffs are “certainly a tool in the toolbox.”
Tariffs would only come about if the Saudis and Russia failed to halt the oil supply increases, and the U.S. government saw the only solution as being a restriction on imports. This would retract the oil and gas market to only domestic sources, and drastically raise the price. A boon to the industry and its reliant states, like Texas and Pennsylvania, but a pain in the wallet for consumers elsewhere.
Hunter DeRensis is a senior reporter for the National Interest. Follow him on Twitter @HunterDeRensis.