Texas Railroad Commission (TRC) Chairman Suggests Possible Production Cuts
Aramco Expected to Announce Prices After Saudi-Russia Production Cut Talks on the 9th
[Asia Economy Reporter Hyunwoo Lee] As OPEC oil-producing countries have consecutively requested the United States to participate in production cuts, the U.S. has emerged as a new variable influencing oil prices. Although the U.S. has no intention of participating in production cuts, citing protection of its shale industry, some quarters have begun to mention the possibility of U.S. involvement, drawing attention.
Ryan Sitton, Chairman of the Texas Railroad Commission (TRC), which oversees oil production in Texas, recently discussed production cuts with the Russian Minister of Energy. In a recent interview with CNBC, he stated, "I had several discussions with Alexander Novak, Russian Minister of Energy, regarding a daily production cut of 10 million barrels," adding, "If our participation in production cuts would help reach an agreement, Texas could also support reducing oil production."
The fact that production cuts were discussed in Texas, where major U.S. oil fields are concentrated, can be interpreted as a sign of the urgency of the current situation in the U.S. Earlier, Whiting Petroleum, a shale company, filed for bankruptcy protection last week, becoming the first among U.S. shale firms to do so. U.S. oil traders also assess that it will be difficult to make progress on production cuts by oil-producing countries without U.S. participation.
Oil-producing countries are expected to decide the direction of production cuts in discussions scheduled for the 9th. In this regard, Saudi Arabia's state-owned oil company Aramco announced it would postpone the schedule for announcing official crude oil selling prices. Aramco's official crude oil selling prices are announced on the 5th of each month and have a significant impact on international oil prices. Since the 1st, Aramco has increased daily oil production by 27% to 12.3 million barrels in line with the Saudi government's production increase policy, and the official selling prices were expected to be significantly lowered accordingly.
Aramco has not disclosed when the price announcement will be made, but it is expected to be after the production cut talks between Saudi Arabia and Russia on the 9th. Market experts interpret Saudi Arabia's postponement of price announcements as a positive signal regarding a production cut agreement between Saudi Arabia and Russia, but they also evaluate that volatility in international oil prices remains high due to unresolved demand declines caused by COVID-19.
Phil Flynn, Senior Market Analyst at Price Futures Group, said, "This postponement of price announcements signals that Saudi Arabia does not intend to continue the oil price war," adding, "Both Saudi Arabia and Russia will try to avoid a repeat of previous negotiation breakdowns as much as possible."
Russia has also expressed willingness to actively engage in negotiations as damages from the oil price war increase. Dmitry Peskov, spokesperson for the Russian Kremlin, stated in an interview with a Russian state TV channel that "the Russian government is prepared for constructive negotiations and believes there is no better alternative than this negotiation for stabilizing the international energy market." According to TASS news agency, the Russian government is concerned that due to the economic crisis caused by the sharp drop in oil prices, the country's GDP will contract by 2.3 to 2.5% this year.
However, even if the two countries succeed in agreeing on production cuts, concerns remain that the positive impact on international oil prices may be limited because the decline in demand due to the COVID-19 pandemic is unlikely to improve immediately. Magnus Nysveen, Senior Analyst at global energy research firm Rystad Energy, pointed out, "The global reduction in oil demand due to COVID-19 is much larger than the production cuts agreed upon by OPEC+," adding, "While the agreement between Saudi Arabia and Russia may be a positive factor for a short-term rebound in international oil prices, for prices to stabilize in the medium to long term, concrete reduction volumes and actual implementation, rather than declarative statements, must be demonstrated."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
