OPEC, U.S. Shale Producers Open Talks Amid Oil Rout
Proposed cuts in U.S. oil output seen as way to help OPEC broker truce in Saudi-Russia price war
U.S. oil industry regulators opened a dialogue with OPEC in talks that could help foster a truce between the world’s three largest oil producers and potentially resolve a Saudi-Russian price war that has devastated oil markets in recent weeks, according to people familiar with the matter.
Mohammed Barkindo, secretary-general of the Organization of the Petroleum Exporting Countries, spoke Friday with Ryan Sitton, the Texas railroad commissioner who oversees the U.S.’s biggest oil patch, these people said.
“Just got off the phone with OPEC SG Moh[ammed] Barkindo. Great conversation on global supply and demand,” Mr. Sitton said on Twitter. “We all agree an international deal must get done to ensure economic stability as we recover from COVID-19.“ The Texan official said the OPEC chief had invited him to the next meeting of the organization in June.
U.S. antitrust laws prevent a formal deal and there is no suggestion the two sides would coordinate on production decisions. But the Texas regulator is considering curtailing output in America’s largest oil-producing state for the first time in decades, people familiar with the matter have previously said.
Mr. Sitton said he would gauge international reaction to the idea of production cuts before deciding how to proceed. “I’m not advocating for Texas to do anything on its own,” he said in an interview.
Meanwhile, Wayne Christian, the Texas commission’s chairman, said he has a number of reservations about a production curtailment.
Shale-oil companies, which are heavily in debt and produce at a higher break-even price compared with conventional Russia and Saudi producers, have been hit hard by the slump. That has led in recent days to stepped-up U.S. engagement with OPEC—which President Trump has often accused of anticompetitive behavior.
U.S. shale companies have complained to Mr. Barkindo about collapsing oil prices and he has also spoken to Frank Fannon, the senior State Department official in charge of energy matters, according to Saudi officials.
Earlier this month, Saudi-led OPEC and Russia were unable to reach a deal on reducing output in response to the coronavirus pandemic, Moscow decided to target U.S. shale production with lower oil prices but was taken aback by Riyadh’s harsh response: price cuts and production hikes that triggered an oil-price collapse below $30 a barrel.
A decision by American producers to reduce output would help the Kremlin claim a victory and spur Russia to resume talks with Saudi Arabia, Saudi officials said.
Saudi officials expect Russia will ultimately return to the table as lower crude prices dent its economy, but only if it can present the oil diplomacy as a face-saving move, according to officials in the kingdom.
A Saudi official said “the perfect [scenario] would be the U.S. giving their word over this and that would make it easier to convince everyone to cooperate.”