Image by Rudy and Peter Skitterians from Pixabay
As gas prices plummet across the United States, the Trump administration has been urging Saudi Arabia to end its ongoing price war with Russia. The low oil prices could devastate the U.S. shale industry.
"The secretary stressed that as a leader of the G-20 and an important energy leader, Saudi Arabia has a real opportunity to rise to the occasion and reassure global energy and financial markets when the world faces serious economic uncertainty," State Department spokeswoman Morgan Ortagus said, referring to Secretary of State Mike Pompeo's call with Saudi Prince Mohammed bin Salman this week.
Riyadh and Moscow have both bolstered oil production, racing for market share. The price war was spurred by the ongoing coronavirus outbreak, due to lower global demand for oil. Saudi Arabia originally urged Russia to cut production, but Moscow refused, as they believed that would benefit the U.S. shale industry, a major competitor to the Russian energy market. The resulting price war has caused gas prices across the U.S. to drop well below $2.
If the price war continues, there is a chance that oil prices could even drop below zero.
"There is no reason to think that oil prices couldn't go negative for a period of time," Raymond James analyst Jeremy McCrea told Yahoo Finance Canada. "I would have never considered it before. But in the current context, it's not out of the realm of possibilities now."
In response to the low prices, President Trump has instructed the Department of Energy to buy crude for the nation's Strategic Oil Reserve. Yet, the Energy Department has suspended its plans to purchase crude, as financing for the operation was left out of the $2 trillion stimulus bill.
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Rep. Mike McCaul, R-Texas, has written a letter to the Undersecretary of State for Energy Keith Krach to encourage the State Department to continue its pressure on the Saudis.
"I commend [Secretary of State Mike Pompeo] for emphasizing the need for global economic stability on his recent call with Saudi Crown Prince Mohammed bin Salman Al Saud, and I encourage you to keep up this pressure until we see changes," McCaul wrote. "The Trump administration stood in solidarity with Saudi Arabia amid Iran's attack on Saudi oil facilities last September, which was a deliberate attempt to disrupt the global economy. I ask that you remind Saudi Arabia of that support as they consider next steps for OPEC and for the Group of 20, which it currently chairs."
The coronavirus has changed global economic activity, as countries around the world shut down to prevent the spread of the disease. U.S. gasoline demand has plummeted up to 40% this week, Pilot Flying J truck stop chain CEO Jimmy Haslam told CNBC's "Squawk Box" on Friday.
U.S. crude on Friday dropped to $21.51 per barrel.