The historic deal reached by OPEC and its oil-producing allies to cut production has worked to "stem the tide, stem the damage that was being done to the market," since the onset of the coronavirus pandemic and the Saudi Arabia-Russia oil price war, U.S. Energy Secretary Dan Brouillette told CNBC.
Oil prices are down more than 55% year-to-date, having experienced the worst price plunges in nearly two decades in the face of record supply, disappearing storage space and global demand eviscerated by coronavirus lockdowns around the world. But they would be even lower if no agreement had been reached, Brouillette told CNBC's Hadley Gamble via phone interview Tuesday.
"Think about what would have happened in the alternative had there been instead of a cut of 10 million on the part of OPEC and OPEC+, what if that number had been zero, what would we be looking at today suggests that it's probably something much lower than where we are," he said. "And I think we may be at a floor. I think the intent of this conversation with OPEC and the rest of the G-20 countries is simply to do exactly that, to mitigate."
An early victim of the oil price crash has been the U.S. shale industry, which is now hemorrhaging jobs as highly-indebted oil producers in the U.S. begin filing for bankruptcy. Up to 240,000 oil-related jobs in the U.S. will be lost this year, according to consultancy firm Rystad Energy.
Saudi Arabia slashed its oil selling prices and increased production after Russia refused to join its plan to further cut output and boost prices in early March. With the two countries reversing course on oil policy in order to pursue greater market share, many suspected the moves were targeting U.S. shale, whose production would largely cease to be economically viable once prices fell below around $50 per barrel. U.S. benchmark West Texas Intermediate is now trading at less than $20 per barrel.
Despite Sunday's production cut agreement, the largest in history, oil prices still fell by 10% on Tuesday as investors remained unconvinced that the cuts will counter the demand destruction wrought by the virus. But a price bounce was not the aim, Brouillette told CNBC. Rather, he argued, it prevented an even deeper hit to the markets.
"I don't think that that was the intent of the conversation, at least with regard to the United States," he said, referring to hopes for a price jump. "I think it was more important for us to stem the losses that were occurring all throughout the marketplace as a result of some of the activities and that loss of demand as a result of the pandemic … (It) is very important that we not allow the market to continue down to what could have been single-digit numbers for the price of a barrel of oil."
Brouillette nonetheless expressed optimism for the longer-term future of shale, saying that "once we get on the other side of this event, they're going to come back stronger than ever." He added that for now, however, "there are certainly players in the shale industry who are heavily leveraged and perhaps some of those folks will not survive this extraordinary event, this pandemic event."
The March production and pricing moves by OPEC kingpin Saudi Arabia angered many in Washington, with U.S. lawmakers writing to President Donald Trump to urge the kingdom to halt its activity they described as destabilizing to the oil markets. "The effect was pretty alarming to many here in the United States," Brouillette said.
The secretary credited Trump with acting "aggressively" to pressure the Saudis and Russians to change course, adding that he can act even more aggressively if the situation calls for it.
"The president has said very, very clearly that he will not allow any type of predatory activity on U.S. markets," he said. "So, you know, there are some in Congress who some felt that the actions (by Saudi Arabia and Russia), while maybe not intended to be affecting the shale industry in the United States, the practical effect is that it was and to the extent that it was, the president was going to react to that."
"Now, I can suggest that, you know, it wasn't intentional," Brouillette added. "If it was intentional then the president can act even more aggressively. And as I said, he will leave every option on the table and is unafraid to use it."
The secretary did not elaborate as to what the president could do in terms of more aggressive measures, but lawmakers had previously suggested anti-dumping legislation and even sanctions.
Some energy industry experts, however, cast doubt on the U.S.'s ability to affect Saudi Arabia or Russia's actions on its own. IHS Markit vice chairman and longtime industry veteran Dan Yergin told CNBC in a March interview that aside from diplomacy, Washington "doesn't have a lot of tools to address this."
Brouillette added that he'd "like to work with Congress to see if we might expand the storage capacity" of the U.S.'s strategic petroleum reserves to make it more available for domestic industry storage and enable the country to "sell when it's high, buy when it's low."
U.S. law authorizes up to 1 billion barrels of storage in the strategic reserves, so any expansion would require congressional approval, but "I'll be working closely with them to do exactly that," Brouillette said.