Gas prices haven’t been this low since the last century, but that may change soon as the president tweeted out the news that he had spoken to Saudi Crown Prince Mohammad Bin Salman, and was told that the Kingdom was going to dramatically decrease oil production.
Just spoke to my friend MBS (Crown Prince) of Saudi Arabia, who spoke with President Putin of Russia, & I expect & hope that they will be cutting back approximately 10 Million Barrels, and maybe substantially more which, if it happens, will be GREAT for the oil & gas industry!
— Donald J. Trump (@realDonaldTrump) April 2, 2020
Russia and Saudi Arabia have been engaged in an oil price war since March 5, as the Saudis jacked up production in an already saturated market. Russia followed suit and, along with the coronavirus recession, led to these historically low gas prices.
But no one is making money when oil has dropped 60 percent in value. U.S. oil producers would be heartened by a big price increase — especially the fracking industry, which has been harder hit than traditional oil drilling companies because it’s more expensive to get the product out of the ground.
In a statement carried on the state-run Saudi Press Agency Thursday, the kingdom said its call for a meeting of major oil producers indicates the country’s support for the global economy at this time, and is “in appreciation of” Trump and the request made by the United States. It said the purpose of calling a meeting is aimed at reaching a fair agreement to restore balance to the oil market.
The state-run news agency in Saudi Arabia noted that a call took place between Trump and the crown prince, but made no mention of Trump’s specific call on Saudi Arabia to cut production.
Trump thinks Putin will oblige him and the Saudis. If so, he better do it quickly.
Low crude prices make many drilling operations in the U.S. unsustainable, and in response companies have announced thousands of layoffs and furloughs. At the same time, for most consumers, falling oil prices can be a blessing. Some stations are selling gasoline for less than $1 a gallon, though the national average is closer to $2, and many Americans staying home won’t see a benefit from low gas prices.
But Putin has been waging a very public war on the U.S. fracking industry, realizing what a game-changer it was for the United States.
“The Kremlin has decided to sacrifice OPEC+ to stop U.S. shale producers and punish the U.S. for messing with Nord Stream 2,” Alexander Dynkin, president of the Institute of World Economy and International Relations in Moscow, a state-run think tank, told Bloomberg.
Putin told a meeting of finance and energy ministers on Sunday that “we need to be prepared for different scenarios,” RT reported. He said that it was unclear how long the situation would continue, but expressed confidence that the Russian economy could deal with any fall out.
Putin may be whistling past the graveyard. The Russian economy badly needs the hard currency that exporting oil gives it and one reason for optimism about the end of the price war is that Russia simply can’t sustain the loss in revenue for very much longer. Both sides will find some face-saving way out of this mess and resume normal production. But analysts think it won’t be until the end of summer before prices fully recover.
Meanwhile, even though gas prices are low, Americans aren’t going anywhere for a while.