April 2020 /// Vol 241 No. 4

Features

World Oil editorial: The market reality API doesn’t “get”

Extremely difficult oil market conditions demand very creative, flexible solutions to counteract predatory actions by state actors and protect infrastructure. This is particularly true in the U.S., yet one industry association seems to be working overtime to stifle discussion of some potential remedies.

Staff, World Oil

The U.S. upstream oil and gas industry, as well as its brethren in countries like Canada, Brazil and Norway, is in an unprecedented situation—collapsed global oil demand on one end, with blatant oversupply of oil on the other end.  

The demand side culprit is, of course, the COVID-19 virus (Coronavirus), which has caused steep reductions in economic activity and severely reduced oil demand. The only thing that will solve this side of the problem is defeating the spread of the virus.

By contrast, the supply side has seen blatant dumping of oil production, principally by two state actors, Saudi Arabia and Russia. Their deliberate actions, supposedly done to punish each other for not reaching a new OPEC+ production cut deal, also have a pre-meditated, predatory flavor, with the goal to take out much of the U.S. shale oil production capability, as well as productive capacity in other countries.

Oil price remedies. Accordingly, the U.S. has every right to protect its own production, from a national security standpoint, with a variety of strong responses available. World Oil’s survey of its U.S. readership, conducted just three weeks ago, indicates very strong support (61.7%) for the Trump administration and/or Congress to take significant remedial action. Another 24.7% were “unsure.”

One measure would be to levy some form of tax/duty/fee on imported oil coming into the U.S. There is plenty of authority for the administration to act, under the Trade Expansion Act of 1962. Again, more than half of World Oil’s survey respondents favor such a move.  

The course of action, to raise oil prices off the bottom and safeguard U.S. (and other countries’) infrastructure, would seem clear. And yet, there is a steady 25% to 30% minority in this industry, who don’t want any governmental action to be taken. This is that rigid group of “free marketeers,” who adamantly believe that the free market can handle the situation, despite indicators to the contrary. Of course, many of us know that that there is no such thing as a “free market in oil,” especially not when state actors like Saudi Arabia and Russia can wield such great impact.

Yet, this minority group seems to have disproportionate influence in informing government officials—purportedly speaking for the industry as a whole—and in making representations to the media. This is despite the fact that many more professionals want a different course of action. And the American Petroleum Institute (API) seems to be smack in the middle of this minority.

API’s role. Don’t misunderstand us: API certainly has a right to express its opinions on a variety of subjects, just as all of us do in the U.S. and other countries. But when API takes it upon itself to purport to speak for everyone in the industry, even when we know that there is a majority of differing opinions/views, this becomes a problem.

Of equal concern is the deliberate set of actions that API has taken over the last two to three weeks, to (in our opinion) try to stomp out the potential for any considerable federal action to be taken, including an import tariff. This has included a consistent stream of press releases, electronic media appearances, and op-ed pieces, all of them geared to putting out a narrative that the oil and gas industry doesn’t need any help and doesn’t want it.

This may be true for a few of API’s largest members that have the balance sheets to withstand this oil price depression, but not once have we seen API’s appearances, releases and notes express concern/compassion for other segments of the industry—independent producers, equipment/service companies (who provide all the technology advances), drilling & workover contractors, engineering firms, and consultants. Is API not concerned about all of these firms?

This brings up the national security angle again—is it in the best security interest of the country to lose so many of these firms and their capabilities? Common sense would say not, yet API’s stance seems to run counter to this fundamental pillar of U.S. society and economy.  

We would hope that API would reconsider its position and tactics. When this group pushed a hands-off position, in 1986-1989, during that massive oil price collapse, nothing was done federally, other than to try to jawbone prices up. The result was a very prolonged, painful recovery. In fact, it took until August 2004 to regain, in constant dollars, the value that oil had in the fall of 1985—19 long years. This is not a formula for industry prosperity, and it cannot be repeated.

We urge other industry associations, groups and individuals to speak out and make yourself heard. We cannot allow our fellow citizens to believe that the API view is the only industry position on the oil market. The fate of hundreds upon hundreds of companies, and tens upon tens of thousands of jobs, is at stake.

The Authors ///

Staff

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