American shale drillers are lobbying the Trump administration to enforce protectionist measures, including sanctions on Russia and Saudi Arabia, in a bid to shield themselves from the oil market crash, the Financial Times reports.
Shale industry proposals
It is understood that one of the most popular shale industry proposals is a block on Saudi crude shipments to Motiva, the largest oil refinery in North America, which is located in Texas and owned by Saudi Aramco.
Other options include tariffs on oil imports, the suspension of military aid to Saudi Arabia; further sanctions on Russian energy companies, or sanctions relief if Russia cooperates, and a waiver of the Jones Act, which would allow for the movement of crude and other products within the US at a lower cost.
Donald Trump is expected to discuss those measures on Friday with the executives of some of the largest US oil companies.
Two US shale producers this week suggested reinstating curbs on oil production in Texas for the first time since the 70s, but large oil companies oppose such moves as well as restrictions on imports.
For instance, the American Petroleum Institute, a powerful industry lobbying group, described the proposed production cuts as a “shortsighted” and “anti-competitive” effort that would “harm US consumers and American businesses”.
Rick Perry advocates for oil protections
According to the FT, the biggest shale producers have also enlisted Rick Perry, Trump’s former secretary of energy and former governor of oil-rich Texas, to lobby on their behalf.
Perry was interviewed on Fox News this week, where he warned about an impending “massive collapse” of the shale industry. He also suggested that Donald Trump should order refineries to use only American oil for the next 60 or 90 days to “send a clear message that we are just not going to let foreign oil flow in here [and] bust our energy industry”.
“Perry’s starting to turn the tide — he has an understanding of what’s going on and deep ties to the Midland crowd,” one source familiar with the talks told the FT. Midland is a Texan town in the Permian Basin at the heart of the stalled shale boom.
A spokesman for Perry denied that he is a registered lobbyist, although acknowledged that he “cares deeply about US energy markets and the energy industry”.
Oil market rout
The coronavirus pandemic has ground entire industries to a standstill, and oil consumption has slumped worldwide by 10 to 20 percent. The stand-off between Russia and Saudi Arabia, who have failed to agree on new curbs on output, has led to an oversupply on the already bearish market, sending prices to their 18-year lows.
Oil futures rallied in their sharpest one-day rise on Thursday after Trump talked up hopes of a new Russian-Saudi deal, but the Kremlin denied plans for such negotiations, and prices pared some of the gains.
This situation is particularly unnerving for shale oil, which is more costly than conventional oil to extract. Shale producers need a WTI oil price from $50 to $55 per barrel to break even. It is currently standing at around $25 a barrel.
This week, the Denver-based Whiting Petroleum became the first American shale driller to file for bankruptcy since the start of the year, and there is reason to suggest it “is just simply the first domino that’s going to fall”, says JTD Energy Services' chief strategist John Driscoll.