Russia’s Skepticism Over U.S. Oil Production Cuts Is Well-Grounded

Bloomberg reported Wednesday that Russian oil representatives are expressing skepticism about the potential for the the U.S. oil industry to participate in global deal to cut crude production in a real, sustaining way. That skepticism is well-grounded in reality.

With the Trump Administration thus far offering only what it calls “automatic” cuts that will take place in the U.S. as drilling activity drops and oil wells are shut-in as the result of low demand, Russian government spokesman Dmitry Peskov told reporters, “You are comparing the overall demand drop with cuts aimed at stabilizing the global market. These are completely different things.”

He’s right.

The problem is, as I pointed out over the weekend, is that, absent quick and certain action by regulators in Texas and other states or an emergency declaration by the Trump Administration designed to shut down production in the Gulf of Mexico and on federal lands, any U.S. contribution to a global supply reduction deal must by law be market-based, and thus, temporary. Unlike Russia, Saudi Arabia and many of the OPEC nations, the U.S. oil industry consists of thousands of companies competing in a free market, and the national government cannot cause production to rise or fall on a whim. The situation is further complicated by the fact that any such move by the federal or state governments would be politically controversial and opposed by certain segments of the U.S. industry itself.

Today In: Energy

There is little doubt that, should current market dynamics persist into the third and fourth quarters of this year, overall U.S. crude production will drop dramatically, with Citigroup, Inc. projecting it to be down by over 1 million barrels per day by October. Frankly, that seems to be a conservative estimate. The trouble in the context of this envisioned global agreement is that, once demand is to a large extent restored, the U.S. industry would simply come roaring back to fill the void, absent some artificial governor on its activities.

Read the Rest at Forbes.com

2 thoughts on “Russia’s Skepticism Over U.S. Oil Production Cuts Is Well-Grounded

  1. Gregg - April 8, 2020

    Produce our own oil for our use.

    Build new refineries (infrastructure anyone?), so we can actually refine our own oil, and cut the permitting crap and get it done.

    Sell our own oil to our own country at market prices.

    Use our own oil.

    Vulnerable ocean transport reduced.

    Less environmental impact.

    National security enhanced.

    Win-Win for MAGA/KAG

    Let the rest of the world deal with the whims of the OPEC and Russia.

  2. Jimmy MacAfee - April 8, 2020

    Russia and others seem to want us to help form a new OPEC. Won’t work, for reasons Dave stated quite well. TTP wasn’t in our best interests, and neither is a newer version of OPEC, with us in it.

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