The Daily Dose

-OPEXAS, OPTEX and the Steel Seizure Case

­-Brent on pace for something it hasn’t done in a month.

OPEXAS. TrumPEC. OPTEX. Those are just samples of the witty banter online this morning as President Trump and the head of the oil and gas regulator in Texas mull artificial controls to prop up the price of oil. Slowing developments on parts of the US shale sector had already spooked major companies like Chevron before demand destruction set in. A battle between Russia and Saudi Arabia over market share, meanwhile, has added insult to injury. Already retreating into nationalism, direct intervention in what should be a private sector issue reveals signs of a profound change in the US economy.

Brent crude oil is on pace for something it hasn’t done in a month – post consecutive gains. The global benchmark was up 3% as of 8 a.m. ET to trade at $29.34 per barrel. That follows a 14.4% jump in the previous session as markets reacted to the prospects of helicopter money.

The story of the day is an op-ed in Bloomberg from Ryan Sitton, the Republican head of the Texas Railroad Commission, floating a trial balloon of government intervention in the oil market. The commission, which regulates the Texas oil and gas sector, has the authority to limit production in the state. By his estimate, Texas is the world’s third-largest oil producer. If Texas cuts output by 10% and Saudi Arabia and Russia agree to do the same, the situation would correct itself for the greater good.

“While Texas controls its destiny, it doesn’t control that of others,” he wrote. “We would need our federal government, and our president, to make a deal that stabilizes oil markets.”

Reuters added that Texas producers Parsley Energy and Pioneer Natural Resources are in favor of some sort of artificial restraint measures. President Trump himself said that he would get involved directly “at the appropriate time.”

If, as the Carter Doctrine proposed, oil is a national security interest, then direct intervention would make sense to ensure the American market is less exposed to volatility triggered by external events. An OPEC-like role could also give Washington the ability to replicate Russia’s ascendant market influence with its position at the OPEC+ group, though that role is becoming uncertain. A growing appetite for lighter crudes could mean swing-producer opportunities for the United States, though break-even costs are prohibitive. For Russia, however, the situation seems different. Dmitry Peskov, the spokesperson for Russian President Vladimir Putin, said the Kremlin recognized the US shale sector was “now in distress” because of the low price environment. For the Russian economy, he insisted, the situation is unpleasant, but not catastrophic. The Central Bank of Russia, for its part, decided Friday to keep its interest rates unchanged. The bank’s governors held to the Kremlin’s position that the situation is temporary. We shall see if calls to nationalize parts of the US energy sector are too. In Youngstown Sheet & Tube Co. v. Sawyer, the US Supreme Court ruled that federal intervention in the steel industry was an extraordinary display of federal power. In the current climate of nationalism, and with the current bench, direct presidential intervention would likely be applauded.


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