OPEC secretary general invites Texas RRC’s Sitton to Vienna meeting
HOUSTON (Bloomberg) --One of the most powerful officials in the biggest U.S. oil state has been invited to OPEC’s inner sanctum in June in a rare rapprochement between two historically antagonistic crude powers.
Texas Railroad Commissioner Ryan Sitton said Friday he was invited by OPEC Secretary General Mohammad Barkindo to attend the group’s summer meeting in Vienna. But even as the surprise announcement reverberated across U.S. and international petroleum circles, Sitton’s proposal to curb Texas crude output for the first time since the 1970s ran into opposition from his own agency.
“While I am open to any and all ideas to protect the Texas Miracle, as a free-market conservative I have a number of reservations about this approach,” Wayne Christian, chairman of the Texas commission that oversees the oil industry, said in a statement. If Texas cuts supply, “there is no guarantee other nations, or even states will follow suit.”
Sitton, an entrepreneur and Republican Party activist virtually unknown outside the Lone Star state, proposed Texas would curb oil output by 10% in exchange for an equivalent gesture by the cartel that controls more than one-third of global production. The third commissioner, Christi Craddick, also expressed doubts, according to a person with direct of knowledge of the situation
Stability Quest
Sitton’s outreach came at the end of a brutal two-week stretch in which international crude lost almost half its value, triggering layoffs, cash crunches and the steepest dive in Permian Basin oil drilling in more than three years. The demand-sapping spread of coronavirus was compounded with the unraveling of the Saudi-Russia supply compact on March 6.
“We all agree an international deal must get done to ensure economic stability as we recover from Covid-19,” Sitton said in a tweet after his conversation with Barkindo.
Although it remains little more than one man’s radical proposal at this point, the potential consequences of an OPEC-Texas agreement are hard to overstate. The cartel’s primacy over world crude markets is unrivaled; Texas pumps more than 40% of U.S. oil and as a standalone entity gushes more than every member of the cartel except mighty Saudi Arabia.
Such a tie-up would also confront Russian President Vladimir Putin with a formidable and heretofore unimaginable foe in using petroleum as a geopolitical weapon.
As it stands, the Organization of Petroleum Exporting Countries and U.S. shale producers are caught in the middle of a price war between Saudi Arabia and Russia, which has helped to drive crude prices to an 18-year low.
Sitton, one of three commissioners at the regulator, wrote in a Bloomberg Opinion piece on Friday that the federal government could coordinate output cuts with Saudi Arabia and Russia to calm the market. Such an approach could stabilize prices in the mid-$30s, Sitton wrote, which would “stave off a total oil industry meltdown.”
Riyadh and Moscow have been locked in a bare-knuckle fight for market share for three weeks after they failed to agree on a response to the oil-demand crash, and dissolved a partnership that had coordinated oil supplies for three years.
Putin refuses to surrender to a Saudi policy he considers blackmail, according to people familiar with the matter, even as the Gulf kingdom ramped output up to historic levels of more than 12 million barrels a day.
There have been tentative signs the two sides may be edging towards an off-ramp from the price war, with the kingdom making its exports a little more expensive, and Russia reiterating that it remains open to cooperation.
‘Uniquely Catastrophic’
OPEC officials have often said that U.S. shale drillers, the biggest contributors to the oil surplus that has emerged this decade, should help shoulder the burden of rebalancing the market. With depressed prices forcing a flurry of job cuts, they may now be willing to join in.
Permian oil explorer Parsley Energy Inc. said the industry needs a coordinated approach, and railroad commission caps on state oil output could be one part of the solution.
“This is a uniquely catastrophic time for the industry, and as such we need to think outside of our normal course of action,” Chief Executive Officer Matt Gallagher said Friday in an emailed statement.
