US to work with Riyadh as oil price tanks; Texas may cut output

WASHINGTON/HOUSTON • The Trump administration plans to send a special energy envoy to Saudi Arabia to work with the kingdom on stabilising the global oil market, as the US scrambles to deal with a price crash so deep that Texas regulators considered curbing production for the first time in nearly half a century.

Oil prices have lost more than half their value in the past two weeks as Saudi Arabia and Russia kicked off a price war and the coronavirus pandemic destroyed demand. US oil now trades at less than US$23 a barrel. The US is sending a special representative to negotiate with Saudi Arabia, officials said last Friday, after the kingdom unleashed production following years of touting its role as a stabilising force for markets.

Saudi Arabia and Russia are locked in a war for global oil market share after their three-year deal to restrain output collapsed earlier this month. The kingdom has vowed to increase production to a record 12.3 million barrels per day, and has chartered numerous tankers to ship oil around the world, pushing prices to near 20-year lows last week. US officials believe Saudi Arabia's move to flood oil markets compounds the global economic crash during a crisis caused by the pandemic.

A senior Energy Department official will be sent to Riyadh for months at least to work closely with State Department officials and the existing energy attache, senior US officials said. The energy representative would help the two countries return to a path of stability, they added.

The hope is that President Donald Trump could negotiate with Saudi Arabia and Russia, and convince them to match cuts with a similar cut in production in Texas, said Mr Ryan Sitton, a commissioner with the Texas Railroad Commission. He said production limits could be implemented quickly, but added that he was not yet advocating for the cuts.

Mr Sitton also said he had spoken with the Organisation of Petroleum Exporting Countries' (Opec) secretary-general Mohammad Barkindo about an international deal "to ensure economic stability as we recover from the coronavirus outbreak".

A senior State Department official said the federal government does not have the ability to restrict the Texas regulator from working with Opec to cut production.

Some US industry representatives were sceptical that Texas should intervene in the market. American oil producers have long resisted such a move.

"Our view is simple. Quotas are bad," said Mr Frank Macchiarola, senior vice-president of policy, economics and regulatory affairs at the American Petroleum Institute.

"They have been proven ineffective and harmful. There is no reason during this time to try to imitate Opec."

REUTERS