Shale oil producers being punished for inaction: Zanganeh

Minister of Petroleum Bijan Zangeneh says shale oil producers in the US and Canada are being punished by a historic rout in oil markets for refusing to join production cuts by OPEC and its allies.

According to Press TV, US crude prices plummeted to their lowest level in history below minus $40 a barrel on Monday amid a slump in demand due to the coronavirus pandemic and a massively oversupplied oil market.

Earlier this month, OPEC along with Russia and other producing nations - known as OPEC+ - agreed to cut oil production by 10 million barrels per day (bpd), but the deal was not large enough to counter oil demand destruction.

“Shale oil producers in the United States and Canada did not undertake any commitment and as we can see, they are naturally punished by the market,” Zangeneh told reporters in Tehran after a cabinet meeting Wednesday.

The minister said to stabilize the market, all producers should commit to production cuts because “OPEC’s actions alone are not enough”.

“Just as the whole world must work together to fight the coronavirus, there must be cooperation to balance the oil market, especially by the producers who produce expensive oil,” he added.

The collapse in prices has threatened to drive the once-booming US oil industry into bankruptcy. Coupled with glum annual forecasts by companies, it has also foreshadowed the biggest economic slump in the US since the Great Depression due to the coronavirus outbreak.

Sweeping lockdowns have halted business activity and sparked millions of layoffs in the United States. Companies have launched dramatic cost-saving measures which have already resulted in 22 million job losses in the past month.

The US is bracing for readings of business activity surveys due Thursday which are expected to plummet to recession-era lows.

US President Donald Trump has tried to hold a stiff upper lip. On Tuesday, he called on the government to make funds available to the US oil and gas industry which is now facing the specter of bankruptcy.

His urgent call came after US crude futures settled at negative $37.63 a barrel on Monday as traders scrambled to get out of the contract for new oil delivery into storage which is already overflowing with no customers.

Zangeneh said the state of oil inventories and low demand as well as uncertainty over the end of the pandemic is preventing prices from recovering and intensifying problems.

“With the outbreak of the coronavirus, the demand for oil was declining but in March, we had the price war which saw some producers increase their output and aggravate and accelerate the crisis through grandstanding,” he added.

A month-long price war between Saudi Arabia and Russia, against the backdrop of the coronavirus pandemic, drove global benchmark Brent crude to below $20 and the OPEC basket to $14.5.

OPEC and other large oil producers led by Russia approved a deal to cut output, after the US threatened to take measures against Saudi Arabia over its crude price war with Moscow.

The US president had threatened Riyadh with oil tariffs and other measures if it did not fix the oil market's problem of oversupply.

SS