Crude oil prices have been battered by both an unprecedented decrease in global oil demand stemming from the COVID-19 pandemic and the outbreak of a price war between Saudi Arabia and Russia, the two largest producers in the OPEC+ global oil cartel. The U.S. benchmark West Texas Intermediate price of crude oil has fallen from $52 per barrel on February 1 to $20 per barrel as of March 30. The last time crude oil was this cheap was the aftermath of the September 11, 2001 terror attacks.

The oil price crash has been nothing short of a disaster for U.S. crude oil producers, many of whom were having a tough time making a go of it even when oil sold for $50 a barrel. Drilling a new shale oil well was a difficult but certainly not impossible way to make money then; it’s a sure-fire loser now. So we should expect new oil well drilling and recompletions to come to a nearly complete halt within the next couple of months. A production decline, layoffs of workers, and bankruptcies will quickly follow.

So what should be done? Prominent voices have argued that the United States needs to aggressively encourage the OPEC+ price war to end in order to save the industry. President Trump himself has made no secret of his desire that Saudi Arabia and Russia get back to their collusive ways. Some, including Texas Railroad Commissioner Ryan Sitton and some (but not all) major shale oil producers, have argued yet one step further: Texas should join in on the cartel by agreeing to impose production quotas on firms in the state, with perhaps the U.S. federal government playing a coordinating role.

These ideas are terrible for U.S. and global oil consumers, will do next to nothing to help oil industry workers, and will set a bad precedent. We should be celebrating OPEC’s price war rather than trying to end it.

Continue reading at Forbes…

Areas of Focus: Energy Markets
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Energy Markets
Well-functioning markets are essential for providing access to reliable, affordable energy. EPIC research is uncovering the policies, prices and information needed to help energy markets work efficiently.
Fossil Fuels
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Fossil Fuels
Under current policies, fossil fuels will play an important role in the energy system for the foreseeable future. EPIC research is exploring the costs and benefits of these fuels as...