US shale companies, faced with obliteration from the global market, are eyeing an unprecedented step: joining forces with Saudi Arabia and Russia on production cuts.
When OPEC and Russian-led producers meet for emergency talks on Monday, “an invitation to US producers is a strong possibility,” a Gulf-based economist told Asia Times on condition of anonymity.
“We’ll invite them as the main oil producer in the world,” a source involved in the planning of the meeting told Russia’s TASS news agency.
TASS specified that the invitation to join the video conference would go to a “US oil regulator”.
That regulator appears to be Texas Railroad Commissioner Ryan Sitton, who on Thursday said he had spoken with Russian Energy Minister Alexander Novak on engaging in “unprecedented” cooperation.
Saudi Energy Minister Abdulaziz bin Salman would be his next call, Sitton said.
Should the three sides end up joining forces on global production cuts, it will be unprecedented.
“This is a first … if it happens,” the economist said.
President Donald Trump is scheduled to meet with US oil executives on Friday at 3 pm EST at the White House to discuss options for salvaging the domestic oil sector.
Outreach to the Saudi-led cartel and Russia will no doubt be on the agenda of the closed-door meeting.
The US ended 2019 as the top oil producer in the world, followed by Saudi Arabia and Russia.
Trump has vacillated between referencing price drops as a “tax cut” for American consumers to engaging in phone and Twitter diplomacy with Saudi Arabia’s crown prince and his counterpart Vladimir Putin.
Saudi and Russian-led producers have since 2017 coordinated to trim a market glut in a format nicknamed as OPEC+.
The alliance broke down only one month ago, when Moscow refused deeper cuts sought by the Saudis. Russia wished to compete with US shale, and production cuts were restricting Russian companies’ ability to invest in the sector.
Now, with Covid-19 collapsing global demand and barrel prices bobbing below $20, they are eyeing a truce.
The Gulf-based economist notes that the shale industry was enjoying “free rider privileges” from OPEC+ production cuts over the past three years.
“The Russians and Saudis conveniently decided to have a brawl at the biggest demand shock to hit in a decade,” he said.
That has “swept the rug” out from under US shale operators.
“The economic fallout of the coronavirus crisis puts the Saudis, Russians and Americans between a rock and a hard place. Neither can afford a price war and rock bottom prices, least of all US producers,” said James H Dorsey, senior fellow at Singapore’s S. Rajaratnam School of International Studies and Middle East Center
“The OPEC meeting could allow Saudi Arabia and Russia to call a time out,” he told Asia Times.
That, he says, could throw US shale a lifeline.