President Donald Trump wants oil prices to keep plunging. OPEC is warning Trump to be careful what he wishes for.
That’s because low prices at the pump have cost the US oil industry jobs in the past, OPEC Secretary-General Mohammad Barkindo told CNN Business on Wednesday.
As a cautionary tale, Barkindo pointed out how painful the 2014-2016 oil crash was for American oil workers. He noted that more than 100 US oil companies went bankrupt and thousands of jobs were lost during that downturn.
Once that crash ended, however, the oil rebound became a big win for energy-producing states like Texas, New Mexico, Colorado and North Dakota. The Permian Basin of West Texas has morphed into one of the most prolific oilfields in the world.
America’s energy industry “benefited immensely” from the coordinated output cuts by OPEC and its allies, Barkindo told CNN Business’ Emerging Markets Editor John Defterios.
“If you look at the job creation in the basins, you will appreciate what OPEC and non-OPEC have jointly done to benefit the United States,” Barkindo said.
Those jobs could be threatened if crude keeps crashing like Trump wants.
Fears about a new supply glut knocked oil into a bear market last week. The selling deepened dramatically on Tuesday, when crude plunged 7%, its worst day in three years.
The OPEC comments serve as a reminder to Trump that cheap oil cuts both way for the United States. American drivers save at the gas pump, but oil workers have their livelihoods threatened.
That’s a reality for the United States, which is both the biggest producer and consumer of oil in the world.
“At the end of the day, whatever decision we make will be in the interest of the United States,” Barkindo said. “I’m sure he (Trump) will come to terms with reality.”
OPEC pledges to do ‘whatever it takes’
Much to Trump’s dismay, OPEC signaled on Monday that it would consider cutting production in response to excess supply.
Despite the oil meltdown, Trump is urging OPEC not to dial back output.
“Hopefully, Saudi Arabia and OPEC will not be cutting oil production,” Trump tweeted on Monday. “Oil prices should be much lower based on supply!”
Barkindo urged Trump to speak directly with OPEC. “We prefer a face-to-face dialogue with his administration,” he said.
But OPEC may go forward with cuts anyway when the cartel meets in Vienna next month.
“We will do whatever it takes to sustain the stability that we have achieved,” Barkindo said. “Going into 2019, there are signs of a resurgence of an imbalance which we are determined to stay the course.”
The comments helped lift US oil prices 2% on Wednesday, putting crude on track to snap its record 12-day losing streak.
Of course, OPEC played a major role in the 2014-2016 crude crash.
Despite a huge glut, OPEC kept pumping aggressively in a bid to steal back market share from the United States and other high-cost producers. The cartel didn’t agree to production cuts until September 2016, when pain from the crash was hurting the finances of Saudi Arabia and other OPEC nations.
OPEC is unlikely to keep production intact this time because it would lead to “sustainably lower prices,” Jeffrey Currie, global head of commodities research at Goldman Sachs, wrote to clients on Tuesday. Currie argued that oil is set to “snap back” because the selloff is not justified.
The Trump administration has played a role in the latest boom-to-bust cycle for oil.
Prices soared earlier this year after Trump officials signaled a desire to cut all oil exports from Iran. But the administration later took a softer approach on Iran sanctions out of fear they could cause crude to spike to $100 a barrel. US officials granted temporary waivers allowing China, India and others to keep buying oil from Iran.
Yet Saudi Arabia, Russia and the United States ramped up output in recent months in a bid to avoid a shortfall caused by Iran.
US production has been especially strong, led by the roaring Permian Basin. America recently surpassed both Russia and Saudi Arabia to become the world’s No. 1 oil producer for the first time since 1973.