Mar 20, 2020 - Energy & Environment

Trump tiptoes toward oil engagement

Illustration of Trump walking in front of an oil pump

Illustration: Eniola Odetunde/Axios

The potential for new U.S. responses to the oil price collapse has seemingly grown — enough to send prices back upward, even though it's all inchoate and fluid right now.

Driving the news: President Trump says he's eyeing some kind of intervention in the oil price war between Russia and Saudi Arabia, telling reporters yesterday that he would get involved "at the appropriate time."

  • Separately, word emerged yesterday that Texas regulators are weighing the extraordinary step, last taken in 1973, of imposing production curbs in the state at the heart of the U.S. oil boom.
  • The Wall Street Journal first reported the discussions, and this morning a member of the Texas Railroad Commission, which regulates the industry, floated the idea in a Bloomberg op-ed.
  • The commission's chairman says no decisions have been made and staff is looking into what it would entail from a "practical standpoint."

Why it matters: The collapse of the Saudi-Russia joint supply curbs, combined with COVID-19's economic toll, has pushed prices sharply downward, creating financial jeopardy for U.S. producers.

Where stands: Oil prices jumped yesterday but they're still low (and gave back some of the gains this morning). The U.S. benchmark West Texas Intermediate (WTI) is around $26-per-barrel after plummeting to $20 earlier in the week, an 18-year low.

  • However, prices are still well over 50% below early January's levels.

What they're saying: Texas Railroad Commissioner Ryan Sitton's piece floats the idea of Texas cutting production by 10% if the Saudis and Russians are also willing to cut output 10% from pre-pandemic levels

  • He notes that it would take the federal government to cut that deal.

What we don't know: How exactly the White House might seek to persuade Saudi Arabia or Russia to come back to the table on supply restraints and whether there's much of an opening.

  • Plus, Trump signaled mixed feelings yesterday, noting low fuel prices were helpful to consumers, but he also said the price decline "hurts a great industry and very powerful industry."
  • He said he wants a "medium ground."

The big picture: There's now a whole bunch of ideas flying around the Beltway. They range from diplomatic outreach to using blunt instruments. For instance...

  • The WSJ, citing an unnamed administration official, said the U.S. is weighing potential sanctions against Russia.
  • GOP Sen. Kevin Cramer of North Dakota, a big producing state, wants Trump to embargo oil from Russia, Saudi Arabia, and other U.S. producers.
  • Also, the administration has previously said it's hoping to buy around 78 million barrels of oil for the Strategic Petroleum Reserve.

What they're saying about the oil landscape

  • "We expect Washington to pursue some degree of 'diplomatic engagement' with Riyadh in coming days, both bilaterally and/or within the auspices of the G20 (over which the Kingdom currently presides)," ClearView Energy Partners said in a note.
  • Oil analyst Ellen Wald tells me: "The best option for U.S. interests right now is for the Trump administration to pursue some diplomatic efforts to calm things down."
    • "Efforts such as sanctions and/or embargoes aren’t realistic and would end up having a negative impact on the United States," Wald said via email.
    • She also said it's unclear whether the Trump administration is making the oil collapse a priority.
  • OANDA analyst Jeffrey Halley says via Reuters: “The outsized gains by WTI reflect the hope and not the reality of the U.S. shale industry. Russia and Saudi Arabia have zero interest in helping US shale survive."

Go deeper: Coronavirus could drive down global oil consumption in 2020

Go deeper