Lawmakers who have been pushing the Trump administration to exert more pressure on Russia and Saudi Arabia to end their oil price impasse, will be watching OPEC’s Thursday meeting with greater-than-usual interest as they determine next steps to shore up a troubled sector.
The virtual meeting, which was postponed from Monday, would be an opportunity for those countries and Russia to agree on production limits to stabilize markets, although an outcome is unpredictable.
Oil-state lawmakers have been worried about the impact of disruptions on their constituents — oversupply has pushed OPEC oil down to $23 and West Texas Intermediate crude oil to $26.97 as of Wednesday afternoon, well below the breakeven point for producers.
Senate Energy and Natural Resources Chairwoman Lisa Murkowski is “closely monitoring” the discussions about oil markets and urging a diplomatic solution, according to Grace Jang, a spokeswoman for the Alaska Republican.
“A starting point is for the oil price war to be called off, with Saudi Arabia and Russia halting their plans to flood the market with unnecessary supply,” Jang said.
Russia’s demand that the U.S. also agree to cut production could be a stumbling block, according to Bhushan Bahree, an executive director at the global information and analytics firm IHS Markit.
“There is quite a lot of negotiating to be done,” Bahree, an expert in global oil markets, told CQ Roll Call. “It’s not clear that they’re on the brink of an agreement, but these things can happen quickly because the situation is pretty dire too.”
Unlike Saudi Arabia, where the oil industry is primarily run by the government, and Russia, where the government exerts control over companies drilling there, the U.S. cannot mandate production cuts as a way to mitigate the supply glut and prop up prices.
U.S. production is, however, expected to drop as producers run out of storage for their excess product while global demand remains low, partly because the coronavirus pandemic has dampened economic activity.
“With U.S production declining based on market forces, [Murkowski] is looking for countries with state-owned and state-directed enterprises to do their part to help rebalance the markets,” Jang said. “If an agreement cannot be reached, she will revisit options that are available to protect the domestic oil and gas industry, which supports more than 10 million American jobs.”
Murkowski and other lawmakers such as Sens. James M. Inhofe, R-Okla., and Cindy Hyde-Smith, R-Miss., have asked the administration to push Saudi Arabia to abandon OPEC and partner with the U.S. to form “a free market energy powerhouse” that would counter Russia.
“If the Kingdom foregoes this path, the United States retains enormously powerful tools at our disposal,” the lawmakers wrote in a March 25 letter to Secretary of State Mike Pompeo. “In addition to the various types of aid and assistance we already provide — none of which should ever be offered perpetually and unconditionally — we are reminded of the levers of statecraft the Administration is empowered to exercise.”
Those tools, the lawmakers wrote, include “tariffs and other trade restrictions to investigations, safeguard actions, sanctions, and much else, the American people are not without recourse.”
Rep. Steve Scalise, R-La., and 48 other House members took a similar approach in a letter Wednesday to Saudi Crown Prince Mohammad bin Salman.
Following reports Wednesday that an increased number of oil-filled Saudi tankers were on the way to the U.S., Sen. Kevin Cramer urged President Donald Trump to reject the imports.
“Right now, the Saudis are sending a wave of supertankers loaded with crude oil to the U.S.,” the North Dakota Republican tweeted. “@realDonaldTrump: don’t let them unload on American soil. Whether through embargo or tariff, the Kingdom cannot flood the market then expect us to fix it.”
Trump has signaled he would be willing to use tariffs on oil imports to pressure the countries to stabilize the markets.
But besides increasing pressure on OPEC countries and Russia, there is little Congress can do to stabilize oil markets.
If the parties participating in the meeting don’t reach an agreement Thursday, they would continue negotiating, but the markets would be spooked.
“It would be a disappointment for the markets that have been anticipating that some resolution would result,” Bahree said.
In the meantime, lawmakers are continuing to push for the Energy Department to purchase oil and store it in the Strategic Petroleum Reserve and soak up some of the overabundant oil on the market.
On Tuesday, a group of oil-state lawmakers, including Sen. John Hoeven, R-N.D., introduced a draft bill that would make available the $3 billion that the Energy Department has suggested it needs to buy oil for the national stockpiles.
“The shale oil revolution has been a tremendous boost both for our economy and our national security,” Hoeven said. “The combined impacts of COVID-19 and the global price war are a real threat to this critical industry and could undermine our long-term capacity for domestic energy production. ”
Rep. Michael C. Burgess, who sponsored the legislation in the House, acknowledged the possibility that Russia and Saudi Arabia may not reach a deal on Thursday.
“Remember their target is American energy producers,” the Texas Republican said. “They know large swaths of the U.S. energy industry have been negatively impacted by low oil prices.”
In the short term, Burgess urged his fellow lawmakers to address the storage problem by taking up the SPR bill, which he said would give producers “time to adjust to the changing global market” during a public health crisis.
“If Congress considers a fourth response bill, this legislation should be included,” he told CQ Roll Call. “To squander this opportunity is nothing more than legislative malpractice.”