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The Energy 202: Trump's oil deal may not be enough to save some U.S. oil companies

with Paulina Firozi

Saudi Arabia, Russia and the United States reached a major Easter weekend deal to cork the gush of oil flooding the world market during the coronavirus pandemic. But the move may not be enough to rescue the U.S. petroleum producers most struggling to stay afloat during what is shaping up to be the biggest economic downturn to hit the oil and gas sector in decades.

Now some American oil producers are bracing for a long haul with low oil prices. They're turning to President Trump's deputies, as well as to state governments, for more help as they try to forestall bankruptcy.

The huge production cut of nearly 10 million barrels per day for May and June falls short of sopping up the excess oil.

That's because the fall in oil prices is due not only to an oversupply from the Saudis and Russians, but also to a drop in demand for gasoline, jet fuel and other petroleum products as people hunker in their home to avoid spreading the contagious virus. 

While the deal may keep the world from testing the limit of tanks to physically store oil, global oil markets barely nudged at the news of the deal, with the price of Brent crude, the international standard, hovering around $31 a barrel. 

“The impact of the OPEC+ supply cut was largely baked into the price already, as markets have been expecting an agreement and remain concerned that even this historically large supply cut will not be sufficient to offset the massive loss of global oil demand,” said Jason Bordoff, director of Columbia University’s Center on Global Energy Policy.

The cut is simply too little, too late, Goldman Sachs said in an investor note echoing that sentiment. “Ultimately, the size of the demand shock is simply too large for a coordinated supply cut, setting the stage for a severe rebalancing."

On Twitter, Trump initially touted the deal that came together over the holiday weekend after an OPEC video conference on Thursday. "The big Oil Deal with OPEC Plus is done," Trump tweeted Sunday.

But by Monday morning, perhaps in a sign of recognition that the agreed-upon cut may not be enough to reassure domestic producers, Trump wrote on Twitter that “the number that OPEC+ is looking to cut is 20 Million Barrels a day, not the 10 Million that is generally being reported." Trump's doubled figure contradicts the one posted on OPEC's website. 

In a sign of uncertainty, some oil producers in hard-hit parts of the country are asking for even more help.

In both Texas and Oklahoma, small to midsize independent drillers are boring into regulators to step in and install production quotas.

The Texas Railroad Commission will consider on Tuesday a petition brought by two Texas producers, Pioneer Natural Resources and Parsley Energy, to “prorate” oil production in the state. Despite its name, the panel has the power to regulate the quantity of oil produced in Texas, but hasn't exercised it since 1972.

As my colleague Will Englund reports, proponents say that without some safeguard against the steep fall in prices, big oil companies will able to scoop up assets once smaller firms go belly up. “This crisis, aggravated by government actions around the globe, calls for appropriate government measures to mitigate the economic consequences,” Mark Berg, executive vice president of Pioneer, wrote to the Texas Railroad Commission. 

In agreement with Berg is Trump friend and fracking billionaire Harold Hamm, founder of the Tulsa-based Continental Resources. Regulators on the Oklahoma Corporation Commission received a similar appeal last Friday.

But big oil companies that stand to gain from consolidation, led by the American Petroleum Institute, are urging the Texas board not to manipulate output. Prorationing, said API's R. Dean Foreman, “appears unlikely to improve market conditions — and could become a precarious and slippery slope.”

One of the three Texas commissioners is not yet ready to publicly commit to anything. “I have not advocated for Texas to prorate," said Ryan Sitton. "I have advocated that we consider it. I felt that we should be open to evaluating any path that helps to bring the international oil community together in a global deal."

Offshore drillers, meanwhile, also are also still eyeing their own aid from the federal government.

Oil producers along the coast of Texas, Louisiana and other Gulf states were already clamoring Monday for relief on royalty payments to a federal government as demand for oil continues its slump. Erik Milito, head of the National Ocean Industries Association, which represents offshore producers in the Gulf of Mexico, urged Trump on Monday to “utilize his full policy toolkit, including offshore royalty relief and lease extensions.”

The Trump administration has already dismissed the idea of a blanket royalty waiver for offshore drillers. But Sen. Bill Cassidy (R-La.), chair of a Senate subcommittee on energy, said Interior Secretary David Bernhardt promised that his department would do “targeted royalty relief” for companies that applied for it. 

One offshore producer has begun the process of requesting relief, according to Interior Department spokesman Conner Swanson. The department's Bureau of Safety and Environmental Enforcement is not disclosing the name of the company.

Despite all the outstretched palms, Trump's deal is still history-making.

The trilateral tango between Saudi Arabia, Russia and the United States is remarkable both for the sheer volume of the production cut — constituting a tenth of global supply — and for the direct involvement of a U.S. president. 

“Everything about the virus crisis is unprecedented, including this mega-deal, which six weeks ago could not have been imagined,” the Pulitzer Prize-winning oil historian Daniel Yergin said. “Also, what could not have been imagined is that Donald Trump, who has been a critic of OPEC for years, is the one who put it together.”

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Power plays

Sen. Bernie Sanders (I-Vt.) endorsed former vice president Joe Biden as the 2020 Democratic nominee on April 13 via live stream. (Video: Joe Biden via YouTube)
Bernie Sanders endorses former rival Joe Biden. 

The independent senator from Vermont announced his endorsement for the presumptive Democratic presidential nominee in a live stream by Biden on the nation’s coronavirus response. “Joe, I know that there is an enormous responsibility on your shoulders right now, and it is imperative that all of us work together,” Sanders said. 

The Biden and Sanders teams said they plan to convene half a dozen joint working groups that will focus on various policy areas, The Post’s Felicia Sonmez and Michael Scherer report.  

One climate group is turning its focus, for now, on down-ballot races. 

The Sunrise Movement has not yet committed to working to support Biden — it's the same group that just last month said Democrats would be “planning their own funeral” if they nominate the former vice president. “Sunrise is keeping the option open if Biden moves to the left on climate,” E&E News reports. The group’s leaders have planned a “full consultation” with members over supporting Biden, per the report, though a timeline is not set. 

Coronavirus fallout

Hundreds of groups want lawmakers to stop utility shutoffs. 

More than 830 environmental, labor, civil rights and utility-justice and other advocacy groups penned a letter to Democratic and Republican leaders in the House and Senate calling for the next coronavirus relief package to include a plan to halt utility shutoffs. The letter cites “unprecedented” job loss that makes it harder for some to pay rent, mortgage or monthly bills for utilities including electricity, water, heat or broadband.

“Families should never be put in the impossible position where they must choose between food and sustaining access to their power and water services, or between shelter and getting care for the coronavirus or other illnesses,” they write, acknowledging some state and local governments as well as some utility companies have halted shutoffs on their own. 

Weather woes compound coronavirus sheltering and response. 

At least 30 people were killed by a storm system that brought destructive tornadoes and damaging winds across the South on Sunday and continued into Monday. 

The dangerous weather continued and brought strong to severe storms to a stretch of more than 700 miles from the Gulf Coast to the Mid-Atlantic on Monday morning. From Texas to Pennsylvania, more than 1.3 million customers lost power, Matthew Cappucci, Andrew Freedman and Jason Samenow report. The weather threatened power grids, transportation and even hospitals treating coronavirus patients. 

“In addition, with many hospitals having added triage tents and tented temporary intensive care units to treat patients stricken with covid-19, such facilities could be threatened by high winds and force ill patients back inside,” Freedman adds.

Wildlife filling the spaces humans vacate. 

Yosemite, like so many other national parks, is closed during the pandemic. Now with campgrounds emptied of the hoards of visitors, some areas have been reclaimed by wildlife. 

Over the weekend, there was a bobcat by a “nearly abandoned administrative buildings, while ravens prattled and danced in the empty parking lots, and coyotes trotted along the valley’s empty roads and walkways,” the Los Angeles Times reports. “Tourists aren’t allowed in California’s most popular national park, but if they could visit, they might feel as if they had been transported to another time. Either to a previous era, before millions of people started motoring into the valley every year, or to a possible future one, where the artifacts of civilization remain, with fewer humans in the mix.”   

Auto manufacturers continue to suspend production. 

General Motors announced it would keep factories in Brazil shuttered for at least 60 more days. The carmaker’s plants there have been closed since March 23, according to Reuters.

Toyota also said it would halt production in its plants in Brazil — the top auto producing country in South America — until at least June 22, Reuters also reports.

Global warming watch

Earth just had its second-warmest March ever recorded. 

Global land and ocean temperatures last month were 2.09 degrees Fahrenheit above the 20th-century average, according to data released from the National Oceanic and Atmospheric Administration. It was the second highest March in the 141 years the agency has kept global temperature records. The 10 warmest Marches on record have all taken place since 1990. 

Communities plan a retreat from the coasts. 

Climate change is forcing a change for waterfront communities like Norfolk, Va., Jim Morrison writes for The Washington Post Magazine. “Though the coronavirus pandemic is the focus of our anxiety today, climate change is continuing unabated in the meantime,” Morrison writes. “As it advances, bringing rising sea levels, increasingly devastating storms and more disastrous flooding, communities across the nation will be contending with the question confronting Norfolk.” 

News from the states

Virginia governor signs clean energy legislation. 

Gov. Ralph Northam (D) signed the Virginia Clean Economy Act, an ambitious measure meant to make Virginia the first Southern state with a goal of carbon-free energy.

  • The details: The law "mandates that the state’s biggest utility, Dominion Energy, switch to renewable energy by 2045. Appalachian Power, which serves far southwest Virginia, must go carbon-free by 2050,” Gregory S. Schneider reports. The measure will also require the state's coal-powered plants to shutter by the end of 2024.
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