U.S. President Trump believes local oil production output cuts will happen automatically thanks to the nature of the free market, he told reporters this week.
“I think the cuts are automatic if you are a believer in markets,” Trump said at his daily coronavirus press briefing. He also added that the U.S. had not been officially asked to take part in any production cuts.
“If they ask me, I’ll make a decision,” the U.S. President said.
Trump’s remarks follow a meeting with U.S. oil producers last week, at which some observers believe a production cut was discussed. One Texas railroad commissioner has already suggested that the state cuts some production to weather the effect of the oil price crash. In contrast, oil companies have launched a lobbying campaign with the White House calling for protectionist measures against Saudi Arabia and Russia, including sanctions and import tariffs.
Meanwhile, Russia has signaled that it would only cut if the United States cuts, too. Saudi Arabia is also likely to be unwilling to go it alone this time. What’s more, from a global supply perspective, if the United States does not join the cuts, their effect on prices will be doubtful.
“The U.S. remains the major global producer, still at 13.0 million [barrels per day] as of last week,” one IHS Markit analyst told MarketWatch. The production numbers that the EIA puts out in its weekly petroleum status report are estimates, and production growth may have started to go down as producers idle rigs and cuts spending plans. However, the fact remains that the U.S. is the top oil producer, and if it does not adjust its output, Russia’s and Saudi Arabia’s willingness to curb production will make little sense for prices.
One could argue that Trump’s call on OPEC and Russia to cut production goes counter to his belief in the free market, but it is also true that U.S. producers would be forced to cut output with or without an international agreement if their breakeven prices are higher than the price at which oil is actually trading.
By Irina Slav for Oilprice.com
More Top Reads From Oilprice.com:
- Big Oil Raises Debt To Ride Out Price Crash
- Oil Majors Are Preparing For $10 Oil
- Are Oil Majors Facing A Terminal Decline?
It seems President Trump and his friends the shale oil producers suddenly remembered free markets when oil prices went below their breakeven prices with the US shale oil industry on the verge of bankruptcy.
As long as prices were above their breakeven costs, they never spared a thought for the livelihood of most of the oil-producing nations whose livelihood they trampled on with the full knowledge that the Trump administration will bail them out even when their outstanding debts are heading towards $1 trillion. They continued to show the ugly face of capitalism. Therefore, it is only fair that they should share the pain of other oil-producing countries.
Any cuts no matter how huge they are won’t have a positive impact on oil prices as long as the outbreak is raging. Moreover, there won’t be a production cut deal without the United States committing itself upfront. Neither Russia nor Saudi Arabia will fall for that.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London