US Secretary of State Mike Pompeo on Thursday in barely veiled terms told Saudi Crown Prince Mohammed bin Salman to end his oil price war with Russia.
“The Secretary stressed that as a leader of the G20 and an important energy leader, Saudi Arabia has a real opportunity to rise to the occasion and reassure global energy and financial markets when the world faces serious economic uncertainty,” a State Department readout from the call said.
Oil in recent days has hovered between US$21 and $25 per barrel, effectively pushing US shale producers out of business at a time when the American economy faces a Covid-19 pandemic-sparked recession.
“There is no sugar coating it, US oilfield activity will collapse with oil prices well below $30,” investment firm Raymond James warned earlier this week.
Saudi Arabia and Russia, former OPEC+ partners, on March 6 failed to reach an agreement on production caps. While the Saudis wanted to see production cuts deepened to compensate for a drop in Chinese demand, the Russians wanted to keep the caps as they were to compete with US shale.
The Saudis then decided to embark on a game of chicken, flooding the market with oil and offering steep discounts to buyers, in an apparent bid to force the Russians to return to the table. But the Russians also dug in, sending prices into a nosedive.
The Saudi move was “completely stupid,” in the words of an oil analyst who spoke frankly on condition of anonymity.
“The guy there is gambling the country’s future,” he said of Mohammed bin Salman.
Donald Trump, who has cultivated ties with the brash young leader from the start of his presidency, initially heralded the drop in prices as a boon for American consumers.
“Industry officials who have talked with White House officials in recent days described Trump as slow to comprehend the twin body blows a global pandemic and a price war between Saudi Arabia and Russia would have on an industry he has long supported,” a report in Politico said.
As evidenced by the Pompeo call, the potentially detrimental cost to US energy producers appears to have now sunk in.