As Russia and Saudi Arabia Retreat, U.S. Oil Industry Avoids the Worst – The New York Times, Nytimes.com
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Job losses and bankruptcies appear certain, but a deal among producers may put a floor under prices for now.
Pump jacks in an oil field near Midland, Tex. A tentative agreement by Russia and Saudi Arabia to reduce oil production would give American companies room to gradually make cuts on their own terms. … (Larry W Smith / EPA, via Shutterstock )
Uncertainties remain for the industry. Virtual summits of oil-producing nations and Group of 26 energy ministers on Thursday and Friday ended with some ambiguity, when Mexico balked at an agreement fashioned by Russia and Saudi Arabia to collectively reduce production by million barrels a day. But the two oil powers appeared ready to give Mexico a pass, after President Trump made a vague promise that the United States would make the cuts its southern neighbor refused to make. Members of the Saudi-led Organization of the Petroleum Exporting Countries had entered talks hoping that the United States, Canada and other western producers would agree to explicit cuts, adding up to another 4 million or 5 million barrels a day. Instead, American officials just made assurances that crude output would be reduced over time, on top of voluntary reductions that have already begun at some U.S. companies. The global oil industry still has many problems. The collapse in economic activity caused by the coronavirus has reduced demand by an estimated (million to) million barrels a day, according to international energy agencies and oil consultants. Analysts expect oil prices, which soared above $ a barrel only six years ago , to remain below $ 96 for the foreseeable future. The American oil benchmark price was just under $ 31 a barrel on Thursday.
But a complete free-fall of oil prices into the single digits – something not seen in two decades – appears to have been avoided. President Trump’s recent public lobbying of Russia and Saudi Arabia to lower production helped raise prices several dollars a barrel, allowing many American companies to reduce their exposure to dropping prices by hedging. By fixing their sale prices at a higher level that was closer to break-even for shale wells, they were able to limit their losses.
American oil companies are already eliminating thousands of jobs, plugging old wells and decommissioning rigs and fracking equipment in preparation for the worst downturn in more than a generation. Oil-producing states like Texas, Oklahoma and North Dakota are expecting deep losses in jobs and tax revenue.
Falling demand for oil around the world may cause American oil exports, which reached more than 3 million barrels a day last year, to dry up almost completely. Concerns about climate change will continue to dog the industry and scare away investors.
industry executives predict consolidation, in which small, indebted companies are either bought by larger ones or merge. Drops in production will come as market conditions of supply and demand dictate. American oil production has already fallen several thousand barrels a day over the last two months and will probably decline another 2 million barrels a day through the end of the year, according to the Energy Department. “There will be some companies that won’t survive,” said Trent Latshaw, president of Latshaw Drilling, an oil service company active in Texas and Oklahoma. “But the industry in general will survive and come out of this stronger. We will have to make hard decisions, innovate, and we’ll become smarter because of this. ”
HOUSTON – The American oil industry may have dodged a bullet. Russia and Saudi Arabia – which only a month ago hoped to undercut American producers – have retreated from threats to pump more oil into the already-saturated market. Acknowledgment that the gamble was hurting themselves as well, they instead announced this past week that they had tentatively agreed to cut production . The change in course would give American companies room to gradually reduce production on their own terms, without government or regulatory mandates, as they invest far less in exploration and production. “Hopefully, the American oil industry has avoided a worst-case scenario, ”said Amy Myers Jaffe, an energy and Middle East expert at the Council on Foreign Relations. “There still will be bankruptcies, but for the time being, the fears that there would be a wholesale destruction of the industry can now be put aside, because the worst of the price war has passed.” What happened in recent days may support an industry that directly and indirectly employs nearly million million. The surge in U.S. production in recent years has reduced dependence on foreign oil, and lowered prices at the gas pump for consumers.Uncertainties remain for the industry. Virtual summits of oil-producing nations and Group of 26 energy ministers on Thursday and Friday ended with some ambiguity, when Mexico balked at an agreement fashioned by Russia and Saudi Arabia to collectively reduce production by million barrels a day. But the two oil powers appeared ready to give Mexico a pass, after President Trump made a vague promise that the United States would make the cuts its southern neighbor refused to make. Members of the Saudi-led Organization of the Petroleum Exporting Countries had entered talks hoping that the United States, Canada and other western producers would agree to explicit cuts, adding up to another 4 million or 5 million barrels a day. Instead, American officials just made assurances that crude output would be reduced over time, on top of voluntary reductions that have already begun at some U.S. companies. The global oil industry still has many problems. The collapse in economic activity caused by the coronavirus has reduced demand by an estimated (million to) million barrels a day, according to international energy agencies and oil consultants. Analysts expect oil prices, which soared above $ a barrel only six years ago , to remain below $ 96 for the foreseeable future. The American oil benchmark price was just under $ 31 a barrel on Thursday.
called OPEC . But caught off guard by the size of the price drop, both Saudi Arabia and Russia needed to reverse course and make supply cuts to prop up crude prices. 
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