US should join Opec market management amid grim prospects for oil demand

Sadly, at the moment we seem to be locked into a cycle of finger pointing and tough-guy posturing.

Crown Prince Mohammed bin Salman, the de facto leader of Saudi Arabia, appears content with what my colleague Javier Blas described as a period of Darwinian survival of the fittest.

Russian President Vladimir Putin says he will not yield to Saudi “blackmail”. While Russia would like higher oil prices — what producer would not? — it is not prepared to act alone, or with a small group of other producers, to keep the rest afloat. Meanwhile, in the US, President Donald Trump is being pressed by some to consider an import tariff, or other sanctions, on Saudi and Russian crude.

But the time for playing the blame game is past. Whether Saudi Arabia and Russia did the right thing by initiating a production free-for-all, any solution has now gone far beyond both Opec and its wider Opec+ coalition.

On Thursday, Trump said he could intervene in an oil-price war between Russia and Saudi Arabia that has left US oil drillers reeling. The time to do so is now. Not by slapping trade barriers on their oil, but by using his deal-making skills to bring them together to agree a united response that includes the US and the rest of the world.

The US, Saudi Arabia and Russia — the world’s three biggest oil producers (by far) in that order — should agree deep, but temporary output restraint. Each needs to bring its allies along to share the burden. This should not become an open-ended Opec++ arrangement, but a one-off, time-limited agreement.

Signs of willingness

It will be painful for oil companies everywhere and there will be howls of protest. But the alternative is the death of the shale sector or, if taken to extremes, possibly even some kind of a war in the Middle East to halt supply.

While striking such a deal will not be easy, there are signs of willingness to help make it happen. The Texas Railroad Commission has signalled its readiness to be part of a solution. I’m sure other US states and Canada will follow.

Saudi Arabia and Russia have decided that high-cost producers outside the Opec+ group must finally share the burden of balancing the market — if they won’t, those high-cost producers may find they bear it all.

• Julian Lee is an oil strategist for Bloomberg. Previously he worked as a senior analyst at the Centre for Global Energy Studies.

Bloomberg