OPEC+ Turmoil Underscores Need for U.S. Oil Diplomacy

Mark Green
Posted April 5, 2020

Although OPEC+ reportedly will delay a planned Monday meeting until later this week to address differences between leading members Russia and Saudi Arabia, there were encouraging signals from the White House after the president’s meeting with a number of natural gas and oil industry leaders, including API President and CEO Mike Sommers.

The continuing oil price war between Russia and Saudi Arabia, which has the two nations increasing production amid a slump in world oil demand, is broadly concerning. The administration is correct to focus strong diplomacy on finding a resolution, the urgency of which is underscored by the postponement of Monday’s OPEC+ meeting. President Trump at a press briefing after meeting with U.S. industry leaders:

“I think they want to get it resolved. I think they’re working very hard. I mean, they told me they want to get it resolved. … They are having a dispute – the two countries – and it’s hurting the rest of the world because it’s really hurting the energy industry. … Ultimately, the market is going to get them to stop.”

The best message from the White House is what’s not on the table: additional U.S. production cuts. As the president said, the global oversupply problem has been worsened by the Russian and Saudi production increases, and those countries bear the responsibility of changing their policies.

While some argue the U.S., the world’s leading natural gas and oil producer, also must cut production in some kind of evolving grand bargain, the privately owned U.S. industry already has made cuts, driven by market realities. It’s time for the Russian and Saudi state-owned industries to respond similarly to the marketplace. As Sommers told CNN Business:

“There were no discussions of production cuts in the meeting – outside of market mechanisms. We have thousands of producers in the United States. We don't have authorities within our government structure to shut in that kind of production. … There are already production cuts happening in the United States. And they are going to be significant, but based entirely on the price of oil, not from a government mandate.”

U.S. policy should not make things worse, for industry and for U.S. consumers. Taking more U.S. oil offline isn’t the answer. Again, the United States already has made market-driven production cuts. Although the president hinted that tariffs could yet be imposed to protect the domestic natural gas and oil industry, we’ve argued they hamstring U.S. energy projects by increasing the costs of imported production materials. Sommers, in a recent blog post:

We’ve seen time and again that free-market policies provide greater stability and growth. Certain reactions in times of global market unrest—such as tariffs or sanctions—ultimately hurt U.S. producers and consumers.

Our industry remains strong. API’s member companies are leaders in developing technology and finding solutions. This is at the core of the U.S. industry’s resilience, which makes it a good bet to help lead our nation to new growth and opportunity. Important is to let markets work, which the president underscored Friday. Sommers, in a recent Bloomberg interview:

“What we have here is a demand shock, of course, because of coronavirus, and a supply shock, because of the decision by Russia and the Saudis to flood the market with oil. … So, we are concerned about these geopolitical factors that are feeding into some downturn within the industry ... But, ultimately, the solution here is to work in a diplomatic way to make sure oil markets are well-balanced.”