The head of the largest U.S oil industry lobbying group is pushing back against proposals to resolve the crude oil price crash that would involve American officials negotiating a joint cut in production with OPEC and Russia — or even banning their imports.
“We have always supported the market to be an arbiter of the price of oil and gas, and during times of crisis, it is not appropriate to abandon those principles,” Mike Sommers, the CEO of the American Petroleum Institute, told the Washington Examiner.
Sommers is particularly opposed to a proposal from a commissioner of the Texas Railroad Commission, which regulates oil production in the biggest producer state.
The commissioner, Ryan Sitton, proposed in a Bloomberg opinion article Friday that the commission could use its authority to issue “pro-rationing” schedules (a power unused since 1973) to force Texas producers to cut production to raise the price of oil. He said Texas could cut production 10% in exchange for Saudi Arabia and Russia each doing the same.
Sitton suggested that OPEC, the oil cartel led by Saudi Arabia, is supportive of the proposal. He tweeted Friday that OPEC Secretary-General Mohammed Barkindo invited Sitton to the oil cartel’s next meeting in June to discuss the idea.
Sommers wants to kill the proposal, arguing it would position the United States in an inappropriate role of manipulating the oil price instead of letting markets dictate it.
“Any proposal that I would call ‘TexOPEC’ would be incredibly damaging to our posture in the world,” Sommers said. “Imposing a production or export quota on Texas crude would really penalize the most efficient producers while supporting less efficient companies.”
President Trump has criticized OPEC over recent years for its alliance with nonmember Russia in cutting oil production to raise the price in order to offset record supply from the U.S. shale industry.
Sommers said U.S. actors conspiring with OPEC on production levels would “make it difficult for us to criticize OPEC in the future.”
Wayne Christian, the chairman of the Texas Railroad Commission, released a statement later Friday opposing Sitton’s proposal to cut the state’s oil production.
“As a free-market conservative, I have a number of reservations about this approach,” Christian said.
API’s Sommers also criticized other policies floated by Republican senators to halt imports of oil from Saudi Arabia and Russia, the two largest oil producers outside the U.S.
Sen. Jim Inhofe of Oklahoma, the GOP chairman of the Armed Services Committee, sent a letter to Commerce Secretary Wilbur Ross this week requesting a Section 232 investigation into Russia and Saudi Arabia for “excessive dumping” in oil markets, calling it a “deliberate” action to “weaken America’s energy independence.”
While the U.S. has become a net exporter of oil thanks to the shale boom, American refiners are built to process heavy, sour crude grades produced overseas.
That means refiners still depend on imports and can’t only rely on U.S. producers that specialize in light, sweet oil to produce fuel for consumers.
“Because we are in a global marketplace, imposing sanctions on any country for free flow of crude across borders would be very damaging to the broader oil and gas industry,” Sommers said.
He said it would be prohibitively expensive for refiners to retool to process lighter, sweet oil, causing higher gasoline prices for U.S. drivers.
Sommers also said he’d expect Saudi Arabia and Russia to impose retaliatory tariffs on U.S. oil exports, an unwelcome possibility for the oil industry that has already been damaged by Trump’s trade wars with China, Canada, and Mexico.
“None of these things happen in a vacuum,” Sommers said. “We have seen really terrible results on this industry with trade wars. I don’t think anybody wants to go back to those days.”
