Don’t be surprised that it has no desire to ride to anyone’s rescue. No doubt it would only be pilloried again for pushing prices up as soon as motorists complain about the cost of filling their tanks.
The virus-related demand destruction will pass at some point, and the time will come when the world will need everyone to be pumping again. It makes no sense to allow the shale industry to be hollowed out, and why should the U.S. or other large producers expect someone else to sacrifice production when they’re not willing to give up any of their own? Soaking up crude by putting it back underground might bring temporary relief — if the Department of Energy can find enough high-sulfur crude pumped by small American producers — but it won’t be long until the Strategic Petroleum Reserve is full.
Sadly, at the moment we seem to be locked into a cycle of finger pointing and tough-guy posturing. Crown Prince Mohammed bin Salman, the de facto leader of Saudi Arabia, appears content with what my colleague Javier Blas described as a period of Darwinian survival of the fittest. Russian President Vladimir Putin says he won’t yield to Saudi “blackmail.” While Russia would like higher oil prices — what producer wouldn’t — it’s not prepared to act alone, or with a small group of other producers, to keep the rest afloat. Meanwhile, in the U.S., Donald Trump is being pressed by some to consider an import tariff, or other sanctions, on Saudi and Russian crude.
But the time for playing the blame game is past. Whether or not Saudi Arabia and Russia did the right thing by initiating a production free-for-all, any solution has now gone far beyond both OPEC and its wider OPEC+ coalition. On Thursday, Trump said he could intervene in an oil-price war between Russia and Saudi Arabia that has left U.S. oil drillers reeling. The time to do so is now. Not by slapping trade barriers on their oil, but by using his deal-making skills to bring them together to agree a united response that includes America and the rest of the world.
It will be painful for oil companies everywhere and I have no doubt there will be howls of protest. But the alternative is the death of the shale sector or, if taken to extremes, possibly even some kind of a war in the Middle East to halt supply.
While striking such a deal won’t be easy, there are signs of willingness to help make it happen. The Texas Railroad Commission has signaled its readiness to be part of a solution. I’m sure other U.S. states and Canada will follow.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Julian Lee is an oil strategist for Bloomberg. Previously he worked as a senior analyst at the Centre for Global Energy Studies.
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