Trump’s ‘Free Market’ Response to a Global Deal to Save Oil

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April 6, 2020
U.S. President Donald Trump speaks during a roundtable with energy sector CEOs in the Cabinet Room of the White House in Washington, U.S., April 3, 2020. REUTERS/Tom Brenner

By Catherine Traywick, Mario Parker and Justin Sink (Bloomberg) — On Thursday, U.S. President Donald Trump sent oil prices rallying on the prospect of an unprecedented, U.S.-backed deal to cut global crude production.

On Friday, he walked out of a meeting with the titans of America’s oil industry without any public declaration of a plan to curtail domestic output, saying it’s a free market and up to Saudi Arabia and Russia to solve their price war that sent crude crashing.

His remarks call into question Trump’s ability to broker a truce between the world’s two biggest crude exporters at a time when the coronavirus pandemic is destroying demand and threatening the shale industry’s survival. The president said that tariffs on oil imports could be imposed, though he’s not planning to do that at the moment.

While both Saudi Arabia and Russia have expressed openness to coordinated production cuts — and Trump said a deal between the two nations will come soon — it’s unclear that can be achieved without the U.S. and other nations also taking part. On Saturday, renewed diplomatic tension between Riyadh and Moscow further blurred the outlook for a deal. Asked whether America would join in, Trump was evasive.

“It’s a free market. We’ll figure it out,” he told reporters in Washington after the gathering with the heads of Exxon Mobil Corp., Chevron Corp. and other major producers. “Ultimately the marketplace will take care of it.”

Left to its own devices, though, the market is poised to collapse further as the Covid-19 crisis could slash global crude demand by almost a third. Hundreds of thousands of industry jobs are hanging in the balance, with about $15 billion of investments wiped out from the budgets of shale explorers and many of them on the brink of bankruptcy. Oil producer Whiting Petroleum Corp. and service provider Hornbeck Offshore Services Inc. filed for bankruptcy this week.

So now all eyes turn to the Organization of Petroleum Exporting Countries, which was initially slated to convene on Monday in a virtual meeting with members, allies and guests including the oil-rich Canadian province of Alberta, in a bid to address crude’s meltdown. But that meeting was delayed as Riyadh and Moscow traded barbs about who’s to blame for the collapse in oil prices. The alliance is now tentatively aiming to hold the virtual gathering on April 9, a delegate familiar with the matter said.

“It’s up to the meeting on Monday chaired by Saudi Arabia to deliver the 10 million barrels a day promised by Trump, without U.S. participation,” Roger Diwan, oil analyst at IHS Markit Ltd, said before the meeting was postponed. “That’s a very high bar to achieve.”

Russian President Vladimir Putin said his country is prepared to take part in deep cuts in oil production together with Saudi Arabia and other major producers. On Saturday, however, Saudi Foreign Minister Prince Faisal bin Farhan said comments by Putin laying blame on Riyadh for the end of the OPEC+ pact between the two countries in March were “fully devoid of truth.”

Trump vowed to support the U.S. oil industry with measures that include filling the country’s Strategic Petroleum Reserve to ease the glut as storage tanks in distribution hubs are almost filled to the brim.

“We’ll get our energy back,” he said during a portion of Friday’s meeting that was open to reporters. “I’m with you 1,000%. It’s a great business, it’s a very vital business and honestly, you’ve been very fair. You’ve kept energy prices reasonable for a long period of time.”

The meeting included Exxon Chief Executive Officer Darren Woods, Occidental Petroleum Corp.’s Vicki Hollub and Energy Transfer LP’s Kelcy Warren. Greg Garland, chairman and CEO of Phillips 66, and Mike Wirth, chairman and CEO of Chevron, also attended.

The executives didn’t ask for a bailout, according to Trump. They did discuss tariffs on foreign oil, which “are a way of evening the score,” he said. “Am I thinking about imposing it as of this moment? No, but if we are not treated fairly, its certainly a tool in the toolbox.”

ClearView Energy Partners analysts said Trump’s comments Friday indicate the U.S. is likely to prod the Russia-Saudi talks along not by expressing a willingness to cut U.S. production but rather a willingness to impose tariffs.

Restricting imports with a tariff, an idea championed by Oklahoma oil tycoon Harold Hamm, a Trump confidant, is one of the most contentious matters, with refiners and Northeast U.S. gas producers firmly opposed.

Prior to the gathering Trump had indicated he already has a plan in mind for helping oil companies he says are being “ravaged” by a price war between Russia and Saudi Arabia. He said he knows what to do to solve the problem, though he declined to reveal the strategy other than to say it’s “tough” and “I’d rather not do that.”

He acknowledged that addressing the growing supply glut, which has been exacerbated by collapsing demand, would be difficult. “It’s going to take a long time to — to get rid of that,” he said. “There’s massive excess amounts of oil and gas. Massive. Like probably there’s never been.”

Energy Secretary Dan Brouillette told oil industry representatives shortly after Trump’s meeting that he expected a Saudi-Russia deal on crude production cuts within days. While he didn’t provide details on what a deal might look like, he stressed that his agency was working with counterparts in both nations, according to four people familiar with the call who asked not to be named detailing a private conversation.

West Texas Intermediate crude suffered its biggest-ever quarterly decline in the three months through March. Even after the past two days’ rally, futures are still down 54% this year.

Trump again Friday called for purchasing oil for the nation’s emergency reserve during the meeting. Funding for the purchases was earlier spiked by Congressional Democrats, but Trump on Friday said they should “go back and see” if it could be included in “another bill.”

Brouillette, speaking at the meeting, said the Energy Department is still planning on purchasing oil for the reserve without providing more details.

–With assistance from Rachel Adams-Heard, Kevin Crowley, Grant Smith, Jennifer Jacobs, Nick Wadhams, Stephen Cunningham, Ari Natter, Jordan Fabian, Brian Eckhouse and Javier Blas.

© 2019 Bloomberg L.P
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