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Trump’s re-election bid and crude oil price crisis

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By Realwan Okpanachi

The United States of America (USA), a country with an estimated population of over 328 million, is the third most populous country in and number one oil and gas producing country in the world, with an average of 17.87 million barrels per day (b/d), which accounts for 18% of the world’s production.

Saudi Arabia, Russia, Canada, and China join the United States in the ranking of top five oil producing countries in the world. A total of 31 of the 50 states in the United States produce crude oil. Crude oil was first discovered in Oil Creek area of Titusville, Pennsylvania in 1859. Since then petroleum has been a major sector in the country.


The United States is a federal republic with presidential system of government. Since the office of the President was established in 1789, forty-four Americans have served as President of United States. The 45th and current president is Donald Trump, who assumed office on 20th January, 2017.


President Trump, an accomplished businessman whose net worth is estimated by Forbes to be $3.1 billion (Three Billion, One Hundred Million Dollars), defied all odds, standards, expectations and opinion polls to emerge as the oldest first-time President of the United States in the 2016 November presidential election. With his tenure due to expire in January, 2021, Trump has indicated his interest to seek re-election as the President of the United States in the presidential election scheduled to hold later this year, November, 2020.


The United States which has been a net importer of oil since at least 1949 is now a net exporter of crude oil. This historic achievement follows the United States becoming the world’s top producer of crude oil and a net exporter of natural gas. The laudable success and achievements recorded in the United States oil and gas sector in the last few years are principally due to President Trump’s deliberate presidential support for the oil and gas sector in the country, a sector that received less attention and support from his predecessor, President Barracks Obama, obviously because of his government and party’s policy on clean and renewable energy.


The United States’ surge in oil production which has resulted in its enviable status as the world’s number one oil producer is made possible by advances in horizontal drilling and hydraulic fracturing (Fracking), which has helped to unlock oil and gas locked in shale rock formations. However, Fracking is expensive, as it involves sand, chemicals and thousands of feet of pipe stretching horizontally out from each fracked well.

By contrast, Saudi Arabia’s oil, involves tapping conventional reserves, at far lower or cheaper cost, putting United States producers at a serious disadvantage when global prices fall.


Crude oil price which for most of 2019 was relatively steady at $60 per barrel has declined significantly and now hovers around $20 per barrel as a result two principal factors, that is, Covid-19 pandemic and oil price war between Saudi Arabia and Russia.

The oil price war started on 6th March, 2020 due to Russia’s refusal of the Saudi-led Organization of Petroleum Exporting Countries (OPEC) proposal to further cut oil production to match a decline in oil demand occasioned by Covid-19-induced global economic meltdown. The Russians instead ramped up oil and gas production, leading to the biggest oil price drop since the 1991 Gulf War.

While some analysts are of the view that Russia’s move is an attempt to grab a bigger piece of the oil market from Saudi Arabia, some are of the opinion that, the move is down to Russian President, Vladimir Putin’s decision to send many United States shale producers out of business. Whatever the motive may be, Suadi Arabia responded swiftly by ramping up her own oil production, offering cheap oil to her clients with a view to maintaining her market shares.


The fall in oil prices has costly implications for the United States shale oil producers who are primarily responsible for the upsurge in oil and gas production in the United States in recent years.

The shale oil producers can only deploy fracking technology, an expensive and complex method to extract oil and gas from shale rock formations, provided that, oil prices remain above $40-50 a barrel. Therefore, it is not surprising that, shale producers are now under threat with many of them already filing for bankruptcy and their assets being taken over by their lenders as opposed to Russians and the Saudis, as well as other big oil producers who deploy cheaper, more traditional methods of drilling for their oil production.

The United States shale oil producers heavily rely on loans from banks and they are reported to owe the banks in excess of $200 Billion in debt backed by their assets.


The falling oil price has forced even the big oil companies into taking cost saving measures. It is reported that, about one hundred and forty (140) United States oil producers (shale producers) may file for bankruptcy before the end of this year if oil price stays below $30 a barrel, with the possibility of another four hundred (400) companies filing for bankruptcy in 2021. In fact, the Wall Street Journal recently estimated that, protracted low oil prices could bankrupt half of all United States shale drillers.


Agitated by the danger the falling oil prices may pose to his re-election bid, particularly in Texas and other Republican leaning states, President Trump who has for long held the view that, “OPEC is an evil force ripping Americans off by not pumping enough oil”, pleaded with Saudi Arabia and Russia to stop pumping so much oil and even brokered a deal between Saudi Arabia and Russia to end their devastating price war by massively cutting production. “Just spoke to my friend MBS (Crown Prince) of Saudi Arabia, who spoke with President Putin of Russia, and I expect and 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”, President Trump tweeted on 2nd April, 2020.


Desperate to see to it that Saudi Arabia and Russia agree to cut production, President Trump threatened to impose tariffs on oil imports to protect the United States oil and gas sector if necessary (in other words, if the OPEC failed to agree on production cut). “If I have to do tariffs on oil coming from outside, or if I have to do something to protect our thousands and tens of thousands of energy workers, and our great companies that produce all these jobs, I’ll do whatever I have to do”, President Trump’s said on 5th April, 2020 at a White House briefing.


Also, reflecting on the urgency of the moment, President Trump held a closed-door meeting with Chief Executive Officers of oil and gas companies, top members of his administration and a handful of Republican Senators to discuss the crisis facing the oil and gas sector with a view to finding a solution.


President Trump is indeed facing a complex situation which he must handle with care to ensure a win win solution for the oil and gas Producers and American people, while it is clear that President Trump doesn’t want oil bankruptcies and job losses in the oil and gas sector at this difficult time for obvious reasons.

He must also avoid being seen as helping the oil companies and their CEOs at the expense of average Americans who desire cheap gasoline prices.


It must be noted that, the reality on ground is such that cheap gasoline is for now not an advantage for motorists in the United States who are scaling back on travel plans as the Covid-19 virus spreads.

Also, the refineries that usually benefit from lower prices for crude oil they use to make gasoline, diesel and jet fuel are now up against a Covid-19-driven drop in local demand and export. According to Bloomberg “Low crude oil prices now seem more likely to hurt the U.S. economy than to help it”. Whichever way one looks at the situation at hand, the American foreign and trade policy of free markets is under threat as November election approaches.


Texas, a Republican leaning state is by far the largest producer of crude oil in the United States. It is ranked 2nd to California in terms of states with the most population and number of electors (Electoral College).

Therefore, it is a huge prize in the November, 2020 election and President Trump cannot afford to lose the State if he must be re-elected. This sentiment is shared by Matt Egan of CNN Business when he opined thus, “the coronavirus pandemic is causing millions of job losses ahead of the November presidential election. A prolonged downturn in the US oil industry would only amplify the economic pain, especially in Republican-leaning states”.

And also by Greg Valliere, chief US policy strategist at AGF Investments, an asset management firm based in Canada, when he stated that, “What has changed is the political equation: Donald Trump cannot win reelection without Texas. It’s as simple as that”.


It is pertinent to state that, at this point, President Trump is not only under pressure to protect his political interest in the Republican leaning oil producing states, the interest of his wealthy supporters in the oil and gas sector whose fortunes are on the line as well as employment of workers whose jobs are concentrated in the Republican leaning states like Texas, Louisiana, Alaska, North Dakota, South Dakota, Mississippi, Wyoming and Oklahoma, but, also under pressure to reward a sector that has consistently supported his government and campaign for re-election.

As reported in Politico, an American Magazine, “President Trump has already raked in some $1.8 million in campaign contributions from Big Oil for his reelection campaign and the industry donated over $6.9 million to his inauguration fund. Trump has at least $9 million reasons to support a Big Oil bailout”.


OPEC+ at their meeting of 12th April, 2020 held via video conference agreed a record oil deal that will reduce global oil output by about 9.7 million barrels (10% of global output) per day with an expectation and a non-binding understanding that, the United States shale producers, Canada, Brazil, Norway and a few other oil producing countries not part of OPEC+ would cut production by 5 million barrels per day.

It must be noted that the challenges with OPEC+ decision to cut production include the facts that, the new production cuts is not expected to take effect until May, allowing oil supplies to increase and the glut to remain and the doubts about whether some of the countries signatory to the deal, like Iraq, which is known to always flout its OPEC quota would abide their obligations under the deal.

The OPEC+ decision to cut production which marked the end of the oil price war between Saudi Arabia and Russia may not have yielded the desired result of lifting oil prices, however, same has to some extent, assuaged growing tensions between OPEC members, Russia and the United States.

It is also, a sort of relief to President Trump and this is evident from his loud reaction to the deal. “The big Oil Deal with OPEC Plus is done. This will save hundreds of thousands of energy jobs in the United States. I would like to thank and congratulate President Putin of Russia and King Salman of Saudi Arabia. I just spoke to them from the Oval Office. Great deal for all!”, President Trump tweeted on 12th April, 2020.

Oil price war may have been resolved, thanks to OPEC+ and President Trump. However, it must be stated that, the damage already caused to the global oil and gas industry is so gargantuan that the OPEC+ deal alone cannot remedy.

The damage can be remedied only if lasting solution or cure for Covid-19 is urgently found. Therefore, President Trump must now channel all efforts towards curtailing further spread of Covid-19 and finding a lasting solution or cure for the virus.

This is so because, many nations of the world including the United States may be heading for economic recession if the dreaded Covid-19 is not curtailed soon. As the United States presidential election approaches in November, President Trump’s job is clearly cutout.

History has not been too kind to incumbent President of the United States who seeks re-election during recession. However, President Donald Trump’s case may be different owing to the fact that, his mandate and assignment in the White House is divine.

Realwan Okpanachi, Esq is
Energy Law Practitioner. He writes in from
Abuja, Nigeria.


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