The United States and Saudi Arabia have been discussing the idea of setting up an oil accord, Bloomberg reports, citing Energy Secretary Dan Brouillette. Such an agreement would effectively amount to a cartel, which, by definition, is a group of independent market participants agreeing to act together to influence the market in a way favorable to them.
For now, however, this is just an idea that some officials in the Trump administration support. The chance of it becoming anything more is unclear, according to Brouillette.
"There are many, many ideas that are floated around the policy space, that is one of them," the U.S. Energy Secretary told Bloomberg in an interview.
"I don't know that it is going to be presented in any formal way."
The U.S. oil industry has suffered a heavy blow from the combination of the coronavirus outbreak and the price war that Saudi Arabia started after Russia refused to cooperate on deeper production cuts. Producers are slashing spending plans, suspending share buybacks, and some have already asked oilfield service providers for substantial discounts to their services.
West Texas Intermediate, the U.S. benchmark, has shed about 60 percent of its value since the start of the year.
According to Reuters' John Kemp, it has further to fall unless the economic outlook for the country-and the world-improves sharply and quickly. This outlook is not good news for either the shale industry or the supermajors in the U.S., which makes the administration's moves concerning Saudi Arabia only logical. But nothing is certain yet.
"As part of the public policy process, if you will, our interagency partners often get together and talk about a number of different items, but we've made no decision on this," Brouillette told Bloomberg.
"At some point we will engage in a diplomatic effort down the road. But no decisions have made on anything of that nature."
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More
Comments
The balance sheet of such an association overwhelmingly favours the United States.
1- It will enhance US influence in the global oil market by using Saudi influence to substitute the inevitable bankruptcy of the US shale oil industry.
2- By joining hands with Saudi Arabia, America will feel it is in a better position to harm the Russian economy at least in oil matters. The collusion of US arms race under the Reagan administration and Saudi flooding of the global oil market in the early 1980s respectively contributed to the collapse of the USSR.
3- Moreover, it enables the United States to blackmail Saudi Arabia to get its hands on its money and force it to do its bidding. Since the discovery of oil on its territory, Saudi Arabia has always appeased the United States, fed its addiction for oil and financed its wars under the illusion that it is getting US protection.
The only downside for the United States is that by joining Saudi Arabia in a new cartel, it proves it is a hypocrite and furthermore it undermines the NOPEC bill under which the United States is threatening to sue OPEC and its members for manipulating oil prices when the new proposed cartel will be doing exactly the same thus proving the double standards the United States apply to suit its interests.
Saudi Arabia’s influence in the global oil market derives from its oil wealth, being the largest exporter of crude oil and also being the leader of OPEC. Joining the US in a new proposed association means the dissolution of OPEC and a decline in Saudi influence in the global oil market. Moreover, it will end up being used by the United States to harm Russia as it did with USSR in the 1980s and squandering its money.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London