U.S. Senator Kevin Cramer (R-ND) issued the following statement on reports of the Organization of Petroleum Exporting Countries and its allies (OPEC+) agreeing to an outline of a deal to cut oil production:
“These reports are encouraging and a step in the right direction. No matter what, the mess Saudi Arabia and Russia made may take years to clean up. I look forward to reviewing more details as they come out and seeing if these actions are enough to provide market stability and will be watching closely to ensure follow through by the parties. If not, the United States will be further empowered to take immediate action.”
Senator Cramer has been a leading voice in the fight to end the oil dispute between Saudi Arabia and Russia, which is greatly harming American energy producers. Learn more here.
Senator John Hoeven, a member of the Senate Energy and Natural Resources Committee, issued the following statement after reports that the teleconference between OPEC members and Russia, as well as other oil producing nations, led to an agreement to cut global oil production by 10 million barrels per day.
“We’ve been working with the President and Administration to end the global oil price war, and we appreciate their efforts,” said Senator Hoeven. “It is important that Saudi Arabia and Russia agree to cut oil production, and follow through, given that demand for oil is down due to the coronavirus pandemic. Ending this global price war is a critical part of our efforts during the pandemic to support our domestic energy producers in North Dakota, and across the nation, who are vital to our economic and national security.”
Hoeven has been working to stop the global oil price war. Specifically, the senator has pressed to resolve the issue, including:
- In meetings and phone calls with President Trump, Energy Secretary Dan Brouillette, Secretary of State Mike Pompeo and other Administration officials.
- In phone calls with Princess Reema Bandar Al Saud, the Saudi Arabian Ambassador to the U.S., where the Senator emphasized that Saudi Arabia needs to work with the United States and the community of nations to end the price war.
- Through a letter to the Saudi Crown Prince Hoeven joined with his Senate colleagues.
- With energy officials from our international partners, urging their support to reach an agreement on global production.
In addition, the Senator has worked to support the domestic oil and gas industry, by:
- Announcing bipartisan, bicameral legislation to provide $3 billion in funding to purchase crude oil produced in the United States for the Strategic Petroleum Reserve (SPR). The legislation aligns with the request made by President Donald J. Trump and Energy Secretary Dan Brouillette to fill the SPR.
- Working with Energy Secretary Brouillette to open the SPR to American producers for leased storage on a temporary basis.
- Encouraging “Buy American” efforts.
Earlier this week, Hoeven hosted Assistant Secretary for Fossil Energy Steven Winberg and Small Business Administration (SBA) North Dakota District Director Alan Haut in a video conference with the North Dakota Petroleum Council and its members, where the senator outlined efforts to support the domestic oil industry and end the global oil price war, as well as highlighted support available to North Dakota’s energy producers through the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
According to Financial Times, Russia is saying that it will not agree to a cut unless the U.S. agrees to mandated cuts beyond natural declines in production.
Senior Energy Expert, Ellen Wald says The US is extremely unlikely to do this, because a mandated cut is impractical in the US, violates free market principals and would most likely be challenged in court by oil companies. Russia is setting the U.S. up as the scapegoat for a failed agreement, laying blame on the U.S. because the U.S. won’t do something that it can’t do.
“There is no mechanism that I’m aware of anyway where the government mandates a production number (increase or decrease), or certainly not some price point mandate” “The beautiful thing about the American market place is that it adjusts almost immediately to the demand curve. If there’s no demand you have no production and we save that over the course of the past few weeks,” said U.S. Secretary of Energy Dan Brouillette
“The US can reduce production but it’s going to have to be done indirectly and voluntarily and we’ve seen that in some of the announcements made by Exxon and continental resources that they are planning to cut their production about 30% in the short term,” Dan K. Eberhart, CEO of oilfield services provider Canary, LLC
But there are about 9,000 Independent US Producers, and in a capital free market, due to lease and debt repayment obligations, it’s impossible for this to happen.
With an estimated reduction of 20-30MMBPD in oil demand as a result of the COVID-19 outbreak, even if the 11MMBPD cuts are exercised, it would not be enough to stabilize Crude markets.
“The US may be out of storage in the next 4-6 weeks, and several midstream companies have sent letters to producers asking them to slow or stop production, which is completely unprecedented because it goes against the pipeline companies own interest.” Said Eberhart
In my mind, this would only happen if storage is near full and prices are expected to fall further, where midstream players expect to buy the remainder of their storage at less than current prices, otherwise fork out extra cash for premium storage such as FPSO or face negative differentials where sellers must pay a premium to sell the product.
Rig count is down 118 rigs, or 15% in the past two weeks and I expect it to fall another 100-125 in the next month. Typically in low price environments, operators cut rigs, and allow for wells to naturally decline. In today’s unprecedented supply glut, additional measures are necessary such as curtailing or shutting in producing wells.
Harold Hamm says tariffs on crude imports are not a solution, as Saudi and Russia are economic dumping. Free markets should ultimately lead to a more efficient market and higher prices when the demand shock abates as people go back to driving and flying.
