Just in case you’ve been living under a rock for the past month and a half or you’re quarantining yourself from the news cycle as well as everything else, allow me to catch you up. We are currently in the midst of a historic oil price crash after crude prices fell more sharply on March 9 than they had on any single day in nearly 30 years: a whopping 30 percent.
The crash was the product of the culmination of a series of unfortunate events, beginning with the spread of COVD-19, which all but shut down the Chinese economy. When anything happens to the second-largest economy in the world, aftershocks are such to be felt around the globe, and international oil demand quickly took a dive. In an effort to respond to the slump in demand, Saudi Arabia and Russia, the leading members of OPEC+, began to talk strategy, but the alliance quickly crumbled overheated dispute and then snowballed into an all-out oil price war and severe global crude glut.
A month later, the glut persists and oil prices remain painfully low. Now, shale billionaire Harold Hamm says that he has the answer to turning these woes around. The oil tycoon out of Oklahoma City has been very vocal about his opinion that Trump’s best bet to combatting the oil price crash is to impose tariffs on the warring OPEC+ leaders of Russia and Saudi Arabia.
On Friday Trump met with Hamm and other oil company executives and industry leaders and influencers, including The American Petroleum Institute, speaking on behalf of big member companies like Exxon and Chevron, API, and American Fuel & Petrochemicals Manufacturers. While Hamm and Republican Senator Kevin Cramer of major oil-producing state North Dakota pushed for an aggressive approach with tariffs against Moscow and Riyadh, API and American Fuel & Petrochemicals Manufacturers--the country’s largest oil lobby--pushed just as hard in the other direction, imploring the president “to avoid U.S. policies that could do more harm than good for American producers.”
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Hamm told the Washington Examiner "I can't sit here and say what the president will or won't do. What I do know is the president has all the authority for whatever he needs to do on this issue," as quoted in an interview earlier this week. "The president realizes our industry is a vital part of the national security interest, and it's something he wants to make sure is not taken undue advantage of."
Initially, Trump had said that he was in favor of letting the market self-regulate, it seems that Hamm’s influence won out, and now the United States president seems to be changing his tune. Trump seems to be in agreement with Hamm’s assessment of the oil crash, and while he hasn’t yet taken any action, he did threaten to impose “very substantial” tariffs on oil imports to the United States on Sunday, “after previously suggesting he'd prefer to sit back and let the market dictate a resolution,” wrote the Washington Examiner.
"If I have to do tariffs on oil coming from outside, or if I have to do something to protect our thousands and tens of thousands of energy workers, and our great companies that produce all these jobs, I'll do whatever I have to do," Trump stated during a Sunday coronavirus briefing at the White House. The Examiner’s report, headlined “Shale billionaire seeks to push Trump across finish line on oil tariffs,” portrays Trump’s statements as the result of the loudest lobbiers in an “oil industry tug of war.”
Only time will tell which direction Trump chooses to go in, with strong industry influence on both sides of this policy divide. As the Examiner points out, Trump is “known for listening to the last person in the room who speaks to him” so it may all depend on whether Hamm and his backing team of Republican senators can keep their momentum into the eleventh hour.
By Haley Zaremba for Oilprice.com
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However, this was President Trump’s plan all along to bail out US shale oil industry at the expense of foreign oil exporters. This won’t work as major oil exporters will shift their exports elsewhere rather than pay the tax.
US shale oil producers including Harold Hamm have been producing recklessly even at a loss without sparing a thought for the livelihood of most of the oil-producing nations of the world whose livelihood they trampled on for years and with the knowledge that they will eventually be bailed out even if their outstanding debts have topped almost $1 trillion.
A week ago I explained to Ms Haley Zaremba, the author of this article the difference between measuring GDP of a country on nominal basis and purchasing power parity (PPP). Based on PPP which is the one used by both the World Bank and the International Monetary Fund (IMF), China’s GDP at $27.31 trillion in 2019 was 27% bigger than the United States’ at $21,43 trillion. Still, Ms Zaremba insists on claiming that China’s economy is the world’s second largest out of bigotry.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London