A rare intervention by the US helped seal crucial OPEC deal

A rare intervention by the US helped seal crucial OPEC deal

A rare intervention by the US helped seal crucial OPEC deal

NEW YORK — As demand for fuel plummeted worldwide and the oil industry faced a devastating drop in oil prices, the U.S. took the rare move of stepping into negotiations involving the member countries of OPEC and non-members such as Russia and Mexico, an alliance called OPEC+.

President Donald Trump and a group of U.S. senators wielded political influence to push OPEC and its allies to agree over the weekend to cut production by nearly 10 million barrels per day — about 10% of current global output.

The unusual action by the U.S. — and the fact that the intervention worked — reflect the desperate conditions the oil industry found itself in due to the economic damage wrought by the coronavirus outbreak.

“There have been oil market crises, but nothing like this before,” said Dan Yergin, vice chairman of IHS Markit. “Even when the price collapsed in 1986 or 1988, demand actually went up. You’ve never had a 20 to 25% drop in demand just overnight. You’ve never had the world economy shut down overnight.”

Trump also knew what was at stake domestically — The U.S. is now the world’s largest oil and gas producer.

“This historic action will help nearly 11 million American workers who are supported by the U.S. oil and gas industry,” Trump said during a coronavirus press briefing Monday.

HOW SIGNIFICANT IS THE U.S. INVOLVEMENT?

American officials have gotten involved with OPEC in the past, making phone calls or attempting to sway a deal during international crises and unusual circumstances. The intervention has typically been in response to high prices; instead, in the current situation, oil prices dropped more than 60% since the start of the year.

“There is nothing new about a president phoning Riyadh to ask for help dealing with oil market disruptions, but the level of pressure and deep involvement of both sides of Pennsylvania Ave., not to mention the G20, along with the scale of the oil cuts on the table, is something rarely seen in OPEC history,” said Jason Bordoff, founding director of Columbia University’s Center on Global Energy Policy.

WHAT EXACTLY DID THE U.S. BRING TO THE TABLE?

Mexico stalled the negotiations by refusing to cut more than 100,000 barrels a day of production, when OPEC was asking for double or triple that amount. Trump said the U.S. would help by shouldering the cuts that Mexico was unwilling to make.

While Trump’s promise to help Mexico may have seemed hollow — U.S. companies were already cutting production due to the low prices — Trump’s intervention on Mexico’s behalf sent a message that could have helped push the wary alliance into a deal.

“They had to agree to give something like a cover story, a diplomatic cover, so that the other parties in OPEC, who whether they liked it or not were going to have to accept these terms, would be able to do so without a loss of prestige,” said Kevin Book, managing director at Clearview Energy Partners.

Trump’s statements also signalled that the U.S. views Mexico as an important partner in the integrated North American energy market, said Amy Myers Jaffe, senior fellow at the Council for Foreign Relations, who also saw it as an important policy move. “I think it will serve the president well on every count,” including border issues, she said.

Even more stark was a call between a dozen U.S. senators and high-ranking energy and defence officials Saturday. Sen. Dan Sullivan, R-Alaska, noted there is legislation drafted that would remove American forces, including Patriot Missile batteries, from Saudi Arabia.

“If they lose that group of senators you start to see veto override majorities on legislation that deals negatively with the Saudis,” Sullivan told a small group of congressional reporters.

That was a very clear threat, Book said. “It’s not really a negotiation at all.” he added. “It’s a pretty dangerous neighbourhood for the Saudis, and the U.S. plays a vital role in protecting them.”

COULD FORCED PRODUCTION CUTS WORK IN THE U.S.?

With state-run oil operations, OPEC nations can easily enact a cut or boost production. But the U.S. has thousands of independent oil producers, so co-ordinating and enforcing a production cut would be complicated, and experts say it’s unlikely.

Some oil producers in Texas and Oklahoma are pushing for state-mandated production cuts, but the industry is split on the prospect. Right now, the producers with more costly production are most likely to suffer, and would be the first to file for bankruptcy or shut down existing wells, damaging oil fields. But a state-managed production cut “spreads out the pain uniformly,” Book said.

“We’re not suggesting that Oklahoma can balance the market, we can’t do that,” said Mike Cantrell, owner of Cantrell Investments LLC, an oil and gas investment group based in Oklahoma. But statewide, production has declined about 20% this year, the equivalent of about 100,000 barrels a day — a cut similar to Mexico’s. If sustained, “that would be a cut that would be a significant cut in the world scheme of things,” he said.

In Texas, commissioners will hold a meeting Tuesday on the topic.

WHY DIDN’T OIL PRICES RECOVER AFTER THE OPEC+ DEAL?

Despite the deal, U.S. benchmark crude was trading at about $22 a barrel Monday, well below what most producers need to financially survive. But that was still better than what some analysts had predicted — including a drop in the price to the single digits.

“A clock was ticking, for all the players, because by the end of April or early May…the world was going to run out of storage, and the price of oil was going to drop like a rock,” Yergin said.

WHAT ABOUT LOW FUEL PRICES?

Low oil prices lead to cheap gasoline prices, and consumers in different times would praise discounts at the pump. Gasoline prices are about $1.86 per gallon, about $1 less than a year ago, according to AAA. But most consumers aren’t able to take advantage, because many are staying home to prevent the spread of the coronavirus. Even when travel restrictions lift, economic turmoil could prompt consumers to save money and stay home.

___

AP Writer Lisa Mascaro contributed to this report.

Follow Bussewitz on Twitter: @cbussewitz

Cathy Bussewitz, The Associated Press

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Alberta’s chief medical officer of health, Dr. Deena Hinshaw, reported an additional 1,307 COVID-19 cases Tuesday. (Photo by Chris Schwarz/Government of Alberta)
Central zone up to 1,249 active COVID-19 cases

Red Deer sits at 257 active COVID-19 cases

Mayor
Mayor Veer appointed as Honorary Lieutenant-Colonel

Red Deer Mayor Tara Veer has been appointed an Honorary Lieutenant-Colonel by… Continue reading

Const. Jason Tress
Mountie testifies another RCMP officer sexually assaulted her at 2012 party

Former Mountie on trial for sexual assault in connection with incident in northwestern Alberta

Prime Minister Justin Trudeau leaves the House of Commons on Parliament Hill in Ottawa, on Monday, Nov. 30, 2020. THE CANADIAN PRESS/Justin Tang
Conservatives push for parliamentary committee study into failed vaccine deal

OTTAWA — The federal Conservatives are calling for a parliamentary committee to… Continue reading

(Black Press file photo).
Pregancy Care Centre seeks support through online fundraiser

The annual banquet was cancelled, due to the pandemic

Idyllic winter scenes are part of the atmosphere of the holiday season, and are depicted in many seasonal movies. How much do you know about holiday movies? Put your knowledge to the test. (Pixabay.com)
QUIZ: Test your knowledge of holiday movies and television specials

The festive season is a time for relaxing and enjoying some seasonal favourites

A cleaner wipes a glass panel at Toronto's Eaton Centre Shopping mall on Saturday, March 21, 2020. The national statistics office will say this morning how much the domestic economy bounced back in the third quarter of the year. The Canadian economy suffered its worst three-month stretch on record in the second quarter as the economy came to a near halt in April before starting to recover in May and June. THE CANADIAN PRESS/Chris Young
Consumer helps fuel third-quarter economic rebound as households resume spending

Consumer helps fuel third-quarter economic rebound as households resume spending

A Suncor logo is shown at the company's annual meeting in Calgary on May 2, 2019.THE CANADIAN PRESS/Jeff McIntosh
Suncor Energy increases spending, oil production guidance for 2021

Suncor Energy increases spending, oil production guidance for 2021

Imperial Oil logo at the company's annual meeting in Calgary on April 28, 2017. Shares in Imperial Oil Ltd. are rising after it announced late Monday it would take a writedown of up to $1.2 billion on Canadian assets it doesn't think it will ever develop. THE CANADIAN PRESS/Jeff McIntosh
Imperial Oil to write off up to $1.2 billion in Alberta natural gas assets

Imperial Oil to write off up to $1.2 billion in Alberta natural gas assets

The Canadian dollar coin is displayed next to the US dollar Friday, January 30, 2015 in Montreal. THE CANADIAN PRESS/Paul Chiasson
S&P/TSX composite gets boost to start December after strong November rally

S&P/TSX composite gets boost to start December after strong November rally

Dustin Mitchell (Coats) is wanted in relation to Nov. 25 homicide. (Photo courtesy of Red Deer RCMP)
Man wanted in homicide investigation still at large

Dustin Mitchell (Coats) wanted in relation to Nov. 25 homicide

Toronto police respond to an incident at St. Michael’s College School, in Toronto, Nov. 19, 2018. The trial of a teen accused of sexually assaulting two students at a prestigious Toronto high school is set to resume today. THE CANADIAN PRESS/Tijana Martin
Trial resumes for teen accused in St. Michael’s College School sex assault case

Defence lawyers for a teen accused of sexually assaulting two students at… Continue reading

Minister of Health Patty Hajdu responds to a question during question period in the House of Commons on Parliament Hill in Ottawa on Monday, Nov. 30, 2020. The Trump administration is keeping silent about Canada blocking its plan to import prescription drugs from north of the border. THE CANADIAN PRESS/Sean Kilpatrick
Trump admin silent after Hajdu pushes back on U.S. plan to raid Canada’s drug cabinet

WASHINGTON, D.C. — The Trump administration is keeping silent about Canada blocking… Continue reading

Most Read