The United States is not joining OPEC. The United States is not leading a cartel to raise oil prices. The United States is, to quote my 5-year-old daughter, “not doing nothing.” The President of the United States is posturing.
Right now, the Trump administration is doing absolutely nothing to jawbone U.S. producers into cutting. In fact, it’s made it clear that U.S. “cuts” will come from market forces. It is remotely possibly that the Texas Railroad Commission (RRC) will order production cuts in Texas, but right now only one of the three commissioners supports the move and hearings about the idea have been contentious, to say the least. Moreover, what would be the point? If a putative 9.7 million bpd cut didn’t move markets, why would anything Texas could do make a difference?
It seems to be true that Trump worked the phones to get the Saudis to accept an agreement. But OPEC has no enforcement power and all the low-cost producers have incentives to cheat. Moreover, the deal is almost a sham. Both Russia and Saudi cut from a baseline level of 11 million bpd (the link goes to the OPEC press release) … but Saudi has never hit that level. The supposed highs of 12 million bpd included sales of stored Saudi crude. Ultimately, Saudi production will be down only 1.2 million bpd.
So good luck with enforcing that deal. As with so much of the Trump administration, this is for show. He gets to show off much he’s in with the Saudis and the Russians, and he gets to tell his backers in the oil industry that he went to bat for them. Good for him, I suppose. But it isn’t much of a cartel and the U.S. government isn’t ordering any production cuts at all. With Covid-19 having destroyed oil demand, prices are not going to go up anytime soon, least because of this deal.
Given the report today on the price in the US, the prices definitely didn't go up.
Posted by: Will Baird | April 20, 2020 at 05:03 PM