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OPEC-Russia Agreement
On Thursday (Apr. 9), OPEC and Russia outlined an agreement on crude production cuts. The deal calls for 10 million barrels a day in cuts, spread among Russia, Saudi Arabia, members of OPEC, and other additional countries. The initial round of cuts would last until the end of June and decrease to 8 million barrels a day from July-December.
Mexican President Andrés Manuel López Obrador initially blocked the deal, but said on Friday (Apr. 10) the U.S. will compensate what Mexico cannot add to the proposed cuts. Experts estimate the cuts could reach 15 million barrels a day in all, around 15 percent of the world’s production.
Energy Secretary Dan Brouillette told his department that the crisis, “transcends the interests of any one nation and requires a swift and decisive response from us all.” The price of crude is down over 50 percent from the beginning of the year, below the costs of production for many countries and companies.
American Petroleum Institute President Mike Sommers said that while the deal would, “help stabilize oil markets, significant challenges remain throughout the supply chain since current market disruptions are driven largely by this historic drop in demand as a result of the COVID-19 pandemic.” He also said, “the best thing for the energy industry – and the entire U.S. economy – is to slow the spread of COVID-19 and stimulate the economy until demand stabilizes and it’s safe for Americans to return to work.”[1]
G20 Talks
G20 energy ministers held an emergency meeting on Friday (Apr. 10) to discuss the impact of COVID-19 and global economic stability of the energy industry. At the meeting, Executive Director of the International Energy Agency Fatih Birol said “the oil world has seen many shocks over the years, but none has hit the industry to the degree we are witnessing today.”
The U.S. and the G20 are preparing to back plans for the largest oil supply agreement in history. President Trump held talks with both Saudi Arabia and Russia over the past few days, and threatened tariffs on their respective oil sales if a deal was not reached.[2]
“We want to restore price stability, advance free and open markets, and return our world to prosperity and opportunity, preserving both the lives and the livelihoods of our fellow human beings everywhere,” Brouillette said at the meeting.
Despite the G20’s support for the oil cuts, these measures will not be enough to mitigate the current challenges. The drop in demand has forced most of the world’s producers to intervene in order to avoid a collapse of the oil industry.
Industry Solutions
While U.S. oil producers will soon trim production, the industry says that the scale of the “demand shock” is so large it will need to be solved by market forces and a return to normalcy.
Around 40 percent of oil and natural gas producers from seven key energy-producing states have said they will face bankruptcy if crude prices stay at $30 per barrel. Firms also reported that oil prices need to be on average at $47 per barrel for drilling to be profitable.[3] Exxon said on Tuesday (Apr. 7) it will cut its spending by about a third this year, which is around $10 billion.
Senate Republicans are pressing the Trump administration to ensure hundreds of billions of dollars in federal loans are available to oil and gas companies. “Industries, like the energy and transportation sectors are facing significant economic challenges as the demand for products and services have dropped with the constraints on the economy,” wrote the group led by Senators Kevin Cramer (R-ND) and Jim Inhofe (R-OK).[4]
The administration has struggled to find a fix for the industry. Trump has rejected a proposal to stop collecting royalties from producers for oil they get from federal lands and waters, citing damage it would cause to state and local government budgets.
Still, Trump has insisted he has “a lot of good options, beauties” in regard to the oil crash.
A bipartisan group of lawmakers introduced legislation on Tuesday (Apr. 7) to make $3 billion available for the Department of Energy to purchase crude oil to fill the available space in the Strategic Petroleum Reserve. If enacted, the bill would provide the necessary funds to ease economic pressure on the oil industry. The bill will likely provide a negotiation point for the next stimulus effort.[5]
Senator Bernie Sanders Exits the Democratic Primary
On Wednesday (Apr. 8), Sen. Bernie Sanders (I-VT) ended his campaign for the Democratic nomination for president. The decision leaves former Vice President Joe Biden as the party’s presumptive nominee to take on President Trump in November.
Sanders made climate change and environmental programs a central part of his campaign. He intended to implement a “Green New Deal,” and pushed for a build out of renewable energy and carbon-free infrastructure.
Biden thanked Sanders in a statement and encouraged his supporters to help him win in November. Sanders’ said he would remain on the ballot in upcoming states to gain more delegates and get his progressive ideas more support and influence over the party platform.
Environmental groups want a more progressive climate policy push from Biden, and want him and adopt more of Sander’s proposals. To see Biden’s current platform, click here.
What’s Next for a Stimulus Package?
On Thursday (Apr. 9), the Senate clashed over competing proposals for emergency pandemic legislation. Democrats blocked a Republican bill to expand the Paycheck Protection Program by $250 billion, and Republicans blocked a Democratic bill that would have approved the small business aid, but also would have given $100 billion to hospitals and community health centers, and $150 billion for state and local governments.[6]
House Speaker Nancy Pelosi (D-CA) said on Friday that while Democrats support an additional $250 billion for small businesses, they also want language included that would ensure businesses owned by minorities and ones in rural areas are able to access the funds quickly.
Senate Minority Leader Chuck Schumer (D-NY) and Treasury Secretary Steve Mnuchin have agreed to pursue bipartisan talks. Pelosi reiterated Democrats’ position that the interim package must include additional funds for state and local governments. President Trump said he would rather have the Democrat’s request included in Phase 4.
Separately, Democrats are working on a broader package known as CARES 2, to boost funding for medical supplies, coronavirus care, unemployment insurance, and provide more cash payments to individuals.
House Transportation and Infrastructure Committee Chairman Peter DeFazio (D-OR) is currently crafting a sweeping infrastructure plan posed to be eventually included in a future coronavirus response package. [7]
Trump also said that a larger relief package should include a payroll tax and infrastructure spending.
References
[1] Anchondo, Carlos, Clark, Lesley, & Lee, Mike. “Oil prices volatile as Trump touts potential OPEC deal.” Greenwire, 10 Apr. 2020. https://www.eenews.net/greenwire/stories/1062838557/search?keyword=OPEC
[2] “G20 prepare to back largest oil supply deal in history.” Financial Times, 10 Apr. 2020. https://www.ft.com/content/16ac91d8-42bf-4190-88de-f3d89b2b36f4
[3] Anchondo, Carlos. “Oil companies warn of ‘massive’ bankruptcies,” Energywire, 9 Apr. 2020. https://www.eenews.net/energywire/stories/1062824611
[4] Koss, Geof. “GOP: Don’t exclude oil industry from stimulus loans.” Greenwire, 8 Apr. 2020. https://www.eenews.net/greenwire/stories/1062821207
[5] Dillon, Jeremy. “Bipartisan group unveils bill to fill petroleum reserve.” E&E News, 7 Apr. 2020. https://www.eenews.net/eenewspm/stories/1062813789/search?keyword=democrats
[6] Lunney, Kellie & Cahlink, George. “Congress deadlocked on next stimulus package.” Greenwire, 9 Apr. 2020. https://www.eenews.net/greenwire/2020/04/09/stories/1062830243
[7] Lillis, Mike. “Pelosi presses Mnuchin on $500B coronavirus ‘interim’ package.” The Hill, 10 Apr. 2020. https://thehill.com/homenews/house/492250-pelosi-presses-mnuchin-on-500b-coronavirus-interim-package
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