U.S. to send envoy to Saudi Arabia; Texas suggests oil
output cuts
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[March 21, 2020] By
Timothy Gardner and Jennifer Hiller
WASHINGTON/
HOUSTON (Reuters) - The Trump
administration plans to send a special energy envoy to Saudi Arabia to
work with the kingdom on stabilizing the global oil market, officials
said on Friday, as the U.S. scrambles to deal with a price crash so deep
that regulators in Texas considered curbing production there for the
first time in nearly 50 years.
Oil prices <LCOc1><CLc1> have lost more than half their value in the
last two weeks as Saudi Arabia and Russia kicked off a price war and the
coronavirus pandemic destroyed demand. U.S. oil now trades at less than
$23 a barrel.
The crash has shocked the oil industry as a pact among OPEC and non-OPEC
producers to cooperate imploded, triggering a production free-for-all.
The United States is sending a special representative to negotiate with
Saudi Arabia, officials said Friday, after the kingdom unleashed
production following years of touting its role as a stabilizing force
for markets.
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Saudi Arabia and Russia are locked in a war for global oil market share
after their three-year deal to restrain output collapsed this month. The
kingdom has vowed to increase production to a record 12.3 million
barrels per day, and has chartered numerous tankers to ship oil around
the world, pushing prices to near 20-year lows this week.
U.S. officials believe Saudi Arabia's move to flood oil markets
compounds the global economic crash during a crisis caused by the
pandemic.
A senior Energy Department official will be sent to Riyadh for months at
least to work closely with State Department officials and the existing
energy attache, the senior U.S. officials said, on condition of
anonymity.
Trump administration officials said Saudi Arabia has for decades been a
steadfast leader of stability in the global oil market. The energy
representative would help the countries return to a path of stability,
they said.
The price crash is also devastating to U.S. oil producers, some of which
have already begun putting employees on furlough.
The hope is that President Donald Trump could negotiate with Saudi
Arabia and Russia and convince them to match cuts with a similar cut in
production in Texas, said Ryan Sitton, a commissioner with the Texas
Railroad Commission, the body that regulates the state's oil and gas
industry.
Sitton said production limits could be implemented quickly, though no
one who works at the agency was around the last time the state limited
production, in the early 1970s.
"We need to take the time to hear from everybody," he said, adding that
he was not yet advocating for the cuts. But "if we can help (Trump) get
a deal done, then I think that's when we do something."
Sitton said on Twitter that he spoke with OPEC Secretary General
Mohammad Barkindo about an international deal "to ensure economic
stability as we recover from" the coronavirus outbreak. Sitton said
Barkindo was "kind enough to invite me to the next OPEC meeting in
June."
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President Donald Trump speaks with Saudi Arabia's Crown Prince
Mohammed bin Salman during family photo session with other leaders
and attendees at the G20 leaders summit in Osaka, Japan, June 28,
2019. REUTERS/Kevin Lamarque/File Photo
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Barkindo told Reuters that he and Sitton discussed their "perspective on current
developments, and the possibility of future cooperation" in a teleconference.
Barkindo and OPEC ministers have, in the past, met with shale-industry
executives at annual conferences.
A senior State Department official said the federal government does not have the
ability to restrict the Texas regulator from any work with OPEC to cut
production.
"Those are wholly within state matters ... from a federal level we have no
ongoing engagements with OPEC, it's a cartel," the official told reporters in a
teleconference.
U.S. INDUSTRY UNMOVED
Some U.S. industry representatives were skeptical that Texas should intervene in
the market. U.S. oil producers have long resisted such a move, and the
industry's largest trade association did not sound convinced on Friday, either.
"Our view is simple. Quotas are bad," said Frank Macchiarola, senior vice
president of policy, economics and regulatory affairs at the American Petroleum
Institute. "They've been proven ineffective and harmful. There's no reason
during this time to try to imitate OPEC."
In the last several years, shale operators using the innovative hydraulic
fracturing, or fracking, technique, have boosted U.S. oil output to nearly 13
million barrels per day, making it the world's largest producer. Since 2016, as
OPEC restrained production, the United States has taken market share from Saudi
Arabia, Russia and other nations.
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Russia has been slower to come on board with OPEC's continued efforts to bolster
prices, and the country's largest oil producer, Rosneft <ROSN.MM>, has been an
opponent of the deal with OPEC to cut supply. Units of Rosneft, and its
managers, were recently sanctioned by the United States due to its trade
relationship with Venezuela.
Trump administration officials will continue to reduce global oil output with
sanctions on what the officials called bad actors in Iran and Venezuela, both of
which are OPEC members, and their shipping networks, the officials said. To the
extent that Russia is involved in marketing Venezuelan oil, it will be
sanctioned, the officials said.
A group of nine Republican U.S. Senators, mainly from oil producing states,
urged Commerce Secretary Wilbur Ross late on Friday to investigate whether Saudi
Arabia and Russia were excessively dumping oil on global markets.
(Reporting by Timothy Gardner and Jennifer Hiller; additional reporting by
Stephen Kalin in Riyadh and Rania El Gamal in Dubai; Editing by Tom Brown,
Leslie Adler and Daniel Wallis)
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