The United States and Saudi Arabia have been discussing the idea of setting up an oil accord, Bloomberg reports, citing Energy Secretary Dan Brouillette. Such an agreement would effectively amount to a cartel, which, by definition, is a group of independent market participants agreeing to act together to influence the market in a way favorable to them.
For now, however, this is just an idea that some officials in the Trump administration support. The chance of it becoming anything more is unclear, according to Brouillette.
“There are many, many ideas that are floated around the policy space, that is one of them,” the U.S. Energy Secretary told Bloomberg in an interview. “I don’t know that it is going to be presented in any formal way.”
The U.S. oil industry has suffered a heavy blow from the combination of the coronavirus outbreak and the price war that Saudi Arabia started after Russia refused to cooperate on deeper production cuts. Producers are slashing spending plans, suspending share buybacks, and some have already asked oilfield service providers for substantial discounts to their services.
West Texas Intermediate, the U.S. benchmark, has shed about 60 percent of its value since the start of the year.
According to Reuters’ John Kemp, it has further to fall unless the economic outlook for the country—and the world—improves sharply and quickly. This outlook is not good news for either the shale industry or the supermajors in the U.S., which makes the administration’s moves concerning Saudi Arabia only logical. But nothing is certain yet.
“As part of the public policy process, if you will, our interagency partners often get together and talk about a number of different items, but we’ve made no decision on this,” Brouillette told Bloomberg. “At some point we will engage in a diplomatic effort down the road. But no decisions have made on anything of that nature.”