Zangeneh: Shale oil producers being punished for inaction

Iran’s Minister of Petroleum Bijan Zangeneh says shale oil producers in the US and Canada are being punished by a historic rout in oil markets for refusing to join production cuts by OPEC and its allies.

US crude prices plummeted to their lowest level in history below minus $40 a barrel on Monday amid a slump in demand due to the coronavirus pandemic and a massively oversupplied oil market.

Earlier this month, OPEC along with Russia and other producing nations - known as OPEC+ - agreed to cut oil production by 10 million barrels per day (bpd), but the deal was not large enough to counter oil demand destruction.

“Shale oil producers in the United States and Canada did not undertake any commitment and as we can see, they are naturally punished by the market,” Zangeneh told reporters in Tehran after a cabinet meeting Wednesday.

The minister said to stabilize the market, all producers should commit to production cuts because “OPEC’s actions alone are not enough”.

“Just as the whole world must work together to fight the coronavirus, there must be cooperation to balance the oil market, especially by the producers who produce expensive oil,” he added.

The collapse in prices has threatened to drive the once-booming US oil industry into bankruptcy. Coupled with glum annual forecasts by companies, it has also foreshadowed the biggest economic slump in the US since the Great Depression due to the coronavirus outbreak.

Sweeping lockdowns have halted business activity and sparked millions of layoffs in the United States. Companies have launched dramatic cost-saving measures which have already resulted in 22 million job losses in the past month.

The US is bracing for readings of business activity surveys due Thursday which are expected to plummet to recession-era lows.

US President Donald Trump has tried to hold a stiff upper lip. On Tuesday, he called on the government to make funds available to the US oil and gas industry which is now facing the specter of bankruptcy.

His urgent call came after US crude futures settled at negative $37.63 a barrel on Monday as traders scrambled to get out of the contract for new oil delivery into storage which is already overflowing with no customers.

Zangeneh said the state of oil inventories and low demand as well as uncertainty over the end of the pandemic is preventing prices from recovering and intensifying problems.

“With the outbreak of the coronavirus, the demand for oil was declining but in March, we had the price war which saw some producers increase their output and aggravate and accelerate the crisis through grandstanding,” he added.

A month-long price war between Saudi Arabia and Russia, against the backdrop of the coronavirus pandemic, drove global benchmark Brent crude to below $20 and the OPEC basket to $14.5.

OPEC and other large oil producers led by Russia approved a deal to cut output, after the US threatened to take measures against Saudi Arabia over its crude price war with Moscow.

The US president had threatened Riyadh with oil tariffs and other measures if it did not fix the oil market's problem of oversupply.

Saudi Arabia submits to oil output cut after US threat

The OPEC and other large oil producers led by Russia have agreed on a deal to cut output after a row between Saudi Arabia and the US degenerated into open threats.

A group of 13 US senators from oil producing states had served Saudi Arabia a portentous warning, saying the kingdom would lose its lifeline on Capitol Hill and face anti-Saudi legislation flourishing if it did not agree to a cut.

The senators called Saudi Ambassador to the US Princess Reema Bint Bandar Al Saud last month and said that they would “not only reevaluate, but take actions” regarding relations with the kingdom.

The collapse in economic activity caused by the coronavirus has reduced demand by an estimated 30 million to 35 million barrels a day, according to international energy agencies and oil consultants.

“This will be oil’s last dance for many US producers as the Trump administration’s efforts to save the shale industry will fall short,” Edward Moya, senior market analyst at OANDA, told Reuters.

“North America shale-oil producers will be forced to shut-in very soon and most of the smaller players will not be able to survive this low-price and dismal demand environment.”

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