American shale producers have launched an aggressive lobbying campaign in support of new sanctions against Saudi Arabia and Russia, urging the White House to compel the oil producing nations to cut output in order to prop up crude prices.
The industry has tapped Rick Perry, President Donald Trump’s recently-departed energy secretary, to help in the push, which has included advocating a block on Saudi crude shipments to North America’s biggest refinery.
Shale producers have faced an existential threat since demand collapsed amid the global coronavirus lockdown and a Saudi-Russian market-share war that drove crude prices down to $20 a barrel. Most shale producers are unprofitable at prices below $50 a barrel, and the bonds of some shale companies have sold off sharply as investors anticipate widespread bankruptcies in the sector.
Mr Trump came to the aid of shale producers on Thursday by talking up a potential production cut deal between Moscow and Riyadh, which sent crude prices up more than 20 per cent. But the Kremlin has denied any agreement is in the works.
The shale push comes despite resistance from the oil industry’s most powerful lobbying organisation, the American Petroleum Institute, which represents the largest energy groups and opposes any controls on supply.
Among the shale industry proposals are preventing Saudi crude from reaching the kingdom’s large Motiva refinery in Port Arthur, Texas; tariffs on foreign oil; or suspending the Jones Act, which helps make crude shipped by domestic suppliers more expensive than oil delivered on foreign tankers.
“The idea that is gaining the most traction is to target Motiva,” the largest refinery in North America, said an executive at a shale producer.
Shale producers are also urging the White House to consider suspending US military aid to Saudi Arabia and imposing further sanctions on Russian energy — or lifting existing ones if the Kremlin co-operates. The US recently imposed sanctions on a trading unit of Rosneft, Russia’s state-controlled energy company.
Mr Trump is due to meet oil industry executives on Friday, where the president is scheduled to discuss strategies if Saudi Arabia and Russia fail quickly to agree to cut supply.
“Plan A is getting Saudi Arabia and Russia to talk and cut. But if that takes too long or fails, the president will resort to plan B — protectionist measures to assist domestic producers,” said Bob McNally, head of consultancy Rapidan Energy Group and a former White House adviser.
While Harold Hamm, chairman of shale producer Continental Resources and a friend of Mr Trump, has publicly called for the two oil producing countries to be investigated for price manipulation, Mr Perry’s involvement carried more influence in the White House recently, said shale executives.
“Perry’s starting to turn the tide — he has an understanding of what’s going on and deep ties to the Midland crowd,” said one person familiar with the talks, referring to the Texan town at the centre of the Permian shale business.
The White House had no comment on Mr Perry’s involvement. A spokesman for Mr Perry said that while he “cares deeply about US energy markets and the energy industry, he follows federal ethics rules and is not a registered lobbyist for any industry”.
In a recent Fox News interview, Mr Perry said he would advise the president to tell US refineries to process only American-produced crude for the next 60 to 90 days and send a “clear message that we’re just not going to let foreign oil flow in here”.
The heads of the API and the American Fuel & Petrochemical Manufacturers, another lobby group, wrote to Mr Trump on Wednesday to oppose restrictions on foreign oil, saying that the ability to buy from around the world, “including those from the Middle East” was a “key advantage for US refineries”.
On Wednesday, Mr Trump said the US oil industry was “being ravaged” by the price collapse, warning of “tough” steps against Saudi Arabia and Russia. Shale companies have slashed spending and drilling plans in recent weeks. On Wednesday, Bakken shale specialist Whiting Petroleum became the first big producer to file for bankruptcy.
US efforts to push oil prices higher mark an awkward pivot for a president who has repeatedly called on the cartel to lower crude prices. But shale lobbying for a more aggressive posture against Russia and Saudi Arabia seems to be getting traction.
On Monday, two producers, Parsley Energy and Pioneer Natural Resources, formally submitted a motion to discuss statewide production cuts with the Texas Railroad Commission, which oversees the state’s oil and gas industry. The API also opposes this.
“The supermajors want the cartel dynamic to come back [in the US oil patch],” said an executive at one shale producer, adding that the big oil companies were now acting against the country’s interest. “The API should drop the American from its name.”
“Pro-rationing is still on the table,” Ryan Sitton, one of the regulator’s commissioners, told the Financial Times on Wednesday, referring to the method by which Texas limited producers’ output decades ago.
Some analysts questioned whether such measures would work. “The scale of the collapse in oil demand from Covid-19 is staggering, and nothing the US alone can do will counter it,” said Jason Bordoff, head of Columbia University’s Center on Global Energy Policy.
Additional reporting by Demetri Sevastopulo in Washington