In his tweet Wednesday, Trump described a Saudi-Russia deal to cut crude output as “good (GREAT) news for everyone!”
Trump also said he had spoken to Saudi Prince Mohammed bin Salman, who had in turn spoken with Russian President Vladimir Putin. But a Kremlin spokesman, Dmitry Peskov, said the conversation hadn’t happened.
The White House declined to comment on the tweets. Crude oil futures in New York surged as much as 35 per cent. Prices have since retreated and were up about 21 per cent at $US24.58 a barrel in early afternoon trade.
Before Thursday, the US president had signalled some ambivalence about the price war. He’s remarked that low prices at the pump for American consumers amounts to a “tax cut”, while also saying he didn’t want the US shale drilling industry to collapse.
In a call with Putin earlier this week, the two leaders agreed that “stability” was important for energy markets, according to a White House statement.
Riyadh has until now made clear it’s ready to cut production provided that other big oil producers, including some that aren’t part of the OPEC+ group like the US, Canada and Brazil, also reduce their output. OPEC+ refers to a previous alliance between OPEC and Russia to set production levels. Mexico’s energy minister said in a tweet that it’s in communication with oil-producing countries and said it was “good news” that the US and Saudi Arabia appear to be on “the same track.”
Russia’s refusal in early March to cut production triggered the oil price war, with the kingdom responding by increasing its output to a record high, above 12 million barrels a day.
Tariffs, US production cut
The idea of a US production cut, probably executed by capping exports, is also on the table at the White House, though many oil industry representatives have warned that the approach would cause the US to cede the very “energy dominance” Trump has repeatedly celebrated.
A chief argument is that dialling down US production is not aligned with the president’s “America First” agenda, said a person familiar with the matter who asked not to be named discussing lobbying strategy.
“It’s not clear what mechanism the White House could use, and I don’t think a lot of the tools that have been publicly reported would have the effect of cutting production,” said Katie Bays, co-founder of Washington-based Sandhill Strategy.
Meanwhile, the Energy Department announced on Thursday that it will make 30 million barrels of storage capacity available to US oil companies.
Restricting exports would likely be the most effective method of scaling down US production, she said. That, coupled with letting producers use the Strategic Petroleum Reserve as storage, “would functionally seem to work for the next few months to take oil off the water,” Bays said.
On the state level, Texas is weighing whether to limit the amount that wells are able to produce. Ryan Sitton, one of three commissioners at the Texas Railroad Commission, which regulates the oil industry, has said he supports coordinating a response with Saudi Arabia and Russia, though such a plan has garnered criticism from industry groups and some producers.
Before Saudi Arabia called for an emergency meeting with non-OPEC members in the G-20, Sitton had said he was invited to the next gathering of OPEC+.
Saudi Arabia and Russia have yet to agree to the size of any production cut, according to an OPEC+ delegate familiar with the conversations. Any curbs will be conditional on every major oil producer also agreeing to reduce production, the person said, asking not to be named discussing diplomatic conversations.
Saudi Arabia wants countries that aren’t part of the OPEC+ alliance to join in any future pro-rationing. Although Riyadh hasn’t drawn up a formal list, in the past OPEC+ had invited big American oil producers, Brazil and Canada to its meetings. Both Canada and Brazil have previously declined. OPEC had also invited the Texas Railroad Commission, which regulates the oil industry in the state, to participate in its meetings.
Trump is scheduled to speak with the leaders of US oil producers and refiners on Friday. One industry leader said the president may have been motivated to remark on the surplus oil production because the US is literally running out of physical space to store crude.
“I think something like this was inevitable because there is nowhere to put the oil,” said Dan Eberhart, a Trump donor and chief executive of drilling services company Canary Drilling Services.
“I think this is out of necessity, not out of gamesmanship.”