U.S. shale oil companies have started a lobbying campaign with Washington to take a more aggressive stance against Russia and Saudi Arabia to force them to cut oil production, the Financial Times has reported, citing industry sources.
Among the measures, according to the sources, is the proposal to introduce tariffs on Saudi oil imports and blocking shipments to the massive Motiva refinery, which is majority-owned and operated by Saudi Aramco. One source said that the latter is the idea that has been gaining the most traction.
Motiva is the largest oil refinery in the United States.
The campaign has taken on former Energy Secretary Rick Perry to help, according to the FT report, and his participation is already making a difference, one industry source has said.
U.S. shale producers were among the hardest-hit players in the industry when Saudi Arabia launched its game of chicken with Russia announcing it would increase oil supply to 12.3 million bpd this month, boosting its production capacity to 13 million bpd. Yet now both Riyadh and Moscow seem to be reconsidering.
Russia said it would not increase production by the 300,000-500,000 bpd it previously said it could add to its average daily from April, while Riyadh has called for an OPEC meeting to discuss next moves as oil price slumped below $30 a barrel.
Yesterday, the benchmarks got a breather after, in a tweet, President Trump said he hoped and expected Russia and Saudi Arabia would reach an agreement to collectively cut between 10 and 15 million bpd. While it is highly unlikely the two would agree to such a massive cut without anyone else - notably the U.S. - taking part, too, the tide may be changing. Related: Iraq On The Brink Of Civil War As Oil Revenues Evaporate
The current oil price is too low even for Russia, who claims to have the most favorable production cost/breakeven ratio among the world's top three producers. Saudi Arabia, while the lowest-cost producer, needs oil at more than $80 to break even in terms of its budget, while U.S. shale producers have breakevens more than double the current price of WTI. The top Russian companies, on the other hand, could remain profitable even with Urals at $15 thanks to a free-floating currency and a flexible tax regime. Russia's budget for 2020 is based on an oil price of a little over $42 a barrel.
The Wall Street Journal has reported, citing OPEC officials, that the cartel and Russia would be meeting Monday to discuss prices and are thinking of inviting U.S. producers to the talks.
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 US shale oil industry has been since its inception in 2008 producing recklessly even at a loss just to enable the United States to have a say in the global oil market along Russia and Saudi Arabia. In so doing it has been depriving most of the oil-producing nations of the world of their livelihood and also gaining market share at the expense of Russia and Saudi-led OPEC.
Therefore, the industry should also share the pain of other oil-producing nations rather than being pampered by easy money provided by Wall Street and other investors and being bailed out by the government. Other oil-producing countries whose livelihood is threatened by the greediness of the shale industry have no access to such privileges.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
Good Night!
You completely left out the National Security part of the equation.
Relying on Russia, a country that would be happy to see America suffer financially, while being dependent on foreign supplies of oil for energy.
Relying on the Saudis, the same country that financed the majority of 9/11 attacks, not to mention being the country Osama bin Laden is from...is also not a good idea for the west.
I'd rather pay more, for a stable supply, than be at the mercy of the Saudis, or the Russians.
Have a nice day.