As demand for fuel plummeted worldwide and the oil industry faced a devastating drop in oil prices, the U.S. took the rare move of stepping into negotiations involving the member countries of OPEC and non-members such as Russia and Mexico, an alliance called OPEC+.
President Donald Trump and a group of U.S. senators wielded political influence to push OPEC and its allies to agree over the weekend to cut production by nearly 10 million barrels per day — about 10% of current global output.
The unusual action by the U.S. — and the fact that the intervention worked — reflect the desperate conditions the oil industry found itself in due to the economic damage wrought by the coronavirus outbreak.
“There have been oil market crises, but nothing like this before,” said Dan Yergin, vice chairman of IHS Markit.
“Even when the price collapsed in 1986 or 1988, demand actually went up. You’ve never had a 20 to 25% drop in demand just overnight. You’ve never had the world economy shut down overnight.” Trump also knew what was at stake domestically — The U.S. is now the world’s largest oil and gas producer.
“This historic action will help nearly 11 million American workers who are supported by the U.S. oil and gas industry,” Trump said during a coronavirus press briefing Monday.
American officials have gotten involved with OPEC in the past, making phone calls or attempting to sway a deal during international crises and unusual circumstances. The intervention has typically been in response to high prices; instead, in the current situation, oil prices dropped more than 60% since the start of the year.
“There is nothing new about a president phoning Riyadh to ask for help dealing with oil market disruptions, but the level of pressure and deep involvement of both sides of Pennsylvania Ave., not to mention the G20, along with the scale of the oil cuts on the table, is something rarely seen in OPEC history,” said Jason Bardoff, founding director of Columbia Unversity’s Center on Global Energy Policy.