Senators: All tools on table to deal with Saudi oil glut
Alaska’s senators say the federal officials should consider all options to help buoy the country’s struggling oil industry but simply restricting imports could invite other issues.
Sens. Lisa Murkowski and Dan Sullivan discussed the situation in separate interviews with the Journal.
Sullivan said that limiting oil imports to the U.S. while the world is oversupplied makes sense at a “base level” but acknowledged that imposing such a restriction effectively would require accounting for a host of other factors.
“All of the tools are on the table,” he said.
Sullivan subsequently issued a joint statement May 4 with Republican Sens. Jim Inhofe of Oklahoma and Kevin Cramer of North Dakota urging the Trump administration to apply national security tariffs to oil imports from Saudi Arabia and Russia. The statement says the tariffs would counter the “anticompetitive behavior” of the two countries, which were embroiled in a roughly six-week oil price war that exacerbated the market impacts of the COVID-19 pandemic and ended in mid-April with a broad agreement to cut daily global production by nearly 10 million barrels.
“Saudi Arabia and Russia’s continued dumping of crude is having lasting and damaging effects on American energy producers. This is intentional — Russia and Saudi Arabia are tired of competing with us and want to put American oil and gas producers out of business so the can once again dictate energy prices to the world,” the senators said.
Murkowski, who chairs the Senate Energy and Natural Resources Committee, said she is wary of tariffs or an outright ban on oil imports, but echoed Sullivan in adding that “right now, all options are on the table” to deal with the oversupply of crude.
“We’ve got a situation right now that is facing us that is a real challenge so how we can be creative is something that we need to look to,” Murkowski said in an interview.
Both of Alaska’s senators signed a March 16 letter to Saudi leaders with 11 other senators urging the government to help stabilize oil markets but Sullivan has taken a much more direct approach since, highlighted by the May 4 statement with Inhofe and Cramer.
Sullivan said he has been on several calls in recent weeks trying to improve the oil market situation with the Trump administration officials, fellow members of Congress and directly with Saudi leaders.
In a two-hour call with 12 other senators Sullivan recalled telling Saudi Energy Minister Prince Abdulaziz bin Salman that there would be enough support in Congress to withdraw U.S. troops from Saudi Arabia if the country didn’t stop attempting to manipulate world energy markets.
“I told the energy minister, ‘Right now you’re talking to 13 of your best friends but stand by and I promise you we will be your worst enemy if you don’t stop what you’re doing that’s hurting our constituents,’” he said.
According to Sullivan, Texas Republican Sen. Ted Cruz participated in the call and noted that 54 senators voted against the administration’s last military weapons sale to the Saudis; however, Trump vetoed the Senate’s measure disapproving the sale and the Senate maintained it.
Adding those 54 senators to the 13 on the call — all of whom voted in support of the arms deal — gets to a veto-proof 67 votes to remove troops from Saudi Arabia, Sullivan remembered Cruz telling the energy minister.
“I’m not bluffing,” Sullivan said.
“The Saudis can be very squirrely but they listen to threats to their existence and trust me, without the U.S. military protecting them there’s a major threat to their existence. The Saudi military is not formidable and couldn’t stop any of their neighbors from invading them.”
The number of U.S. troops stationed in Saudi Arabia is classified, according to Sullivan, but he said that the U.S. has missile batteries there that could also be pulled.
He also emphasized that he will be among many members of Congress watching the Saudis closely to make sure they adhere to the two-year production agreement.
“When a country that we’ve helped and protected starts to take actions that directly negatively and significantly hurt people that I’m privileged to represent and there’s some indications that they’re doing it on purpose, for that reason, it’s a whole new ballgame,” he said further.
The agreement to cut oil production by roughly 10 percent worldwide starting in May was hailed as “unprecedented” when the leaders of major oil producing countries announced it last month. Yet, oil prices continue to languish, particularly in the U.S., because the deal does not come close to counteracting the even more massive decline in daily oil demand brought on by economic shutdowns imposed to fight the spread of COVID-19.
According to the International Energy Administration, worldwide oil demand fell by approximately 29 million barrels per day in April, or about 30 percent, from a year ago. The IEA expects overall oil demand in 2020 to fall by 9.3 million barrels per day, the group said in its April Oil Market Report.
The price for global benchmark Brent crude has stabilized in the high $20s per barrel versus the $63 per barrel Brent oil averaged in January just prior to pandemic spreading across the globe, but prices for Alaska and Lower 48 oil have fallen even further. The prices for Alaska North Slope and West Texas Intermediate, or WTI, briefly went negative April 20 and have since recovered; however, oil in those markets continues to trade at a steep discount to Brent.
As of May 4, WTI sold for $20.39 per barrel and a barrel Alaska North Slope crude went for just $14.60 despite trading at a slight premium to Brent as recently as January.
Alaska economists have said that the relative isolation of the West Coast market where most oil from the state is sold from the rest of the country and a surge of oil imported from the Middle East — mainly Saudi Arabia — has depressed the price of Alaska oil even further.
Before the production cut agreement in which Saudi Arabia is supposed to scale back to 8.5 million barrels per day, Saudi leaders insisted the country would increase its production to about 12.3 million barrels per day. According to a February S&P Global Platts report Saudi Arabia produced 9.7 million barrels per day in January.
And even though the Russian-Saudi truce is approaching a month old, the impacts of the war are still being felt in the U.S.
According to the Energy Information Administration, domestic crude stocks hit more than 527 million barrels in the third week of April, up 9 million barrels from the week prior and nearly 30 million barrels more than was stored a year ago. Stores of refined products have stabilized of late but also far exceed what was available a year ago, according to EIA data.
Sullivan and Murkowski both acknowledged that roughly 40 million barrels of oil sitting in tankers off the West Coast was purchased in February and March by U.S. refiners.
“As much as I want to say turn those tankers around we don’t want them here; they’re replacing Alaska crude or they’re taking up space in our limited storage — again I think we need to recognize that many of our refiners are set up to take just exactly that heavy Saudi crude and that’s what they need,” Murkowski said, while also questioning how the contracts would be resolved if the foreign oil was wholly turned away.
North Slope crude generally has a slightly lighter makeup than Saudi oil and refiners can adjust to handle different oils with adequate lead-time.
Sullivan and Murkowski both said they have tried to encourage other countries to fill their national oil storage systems to help ease the global oversupply.
According to the IEA, which helps coordinate global oil storage, if each country with storage available were to “top off” its reserves up to 2 million barrels per day could be pulled from the market over about three months.
“It’s not going to save us, but it’s not bad,” Sullivan said of the idea.
Murkowski said following a call with Energy Secretary Dan Brouillette that the Energy Department has made space available to domestic producers in the U.S. Strategic Petroleum Reserve.
“Lease it out so producers could offload, keep it there and basically pay to retrieve it later,” Murkowski said.
She has said she will co-sponsor legislation authorizing $3 billion for the Energy Department to purchase U.S. oil to fill the SPR when Congress reconvenes.
Additionally, Murkowski said Energy officials are looking into more storage for refined products.
“We’re looking to what we can do to address the storage issues,” she said.
Elwood Brehmer can be reached at [email protected].