By Stephen Cunningham
President Donald Trump previously wielded the threat of tariffs on shipments from Saudi Arabia and Russia if a deal wasn’t reached, and this option hasn’t been entirely removed from the equation, said Francis Fannon, the U.S. assistant secretary of state for energy resources. That signals the U.S. wants to ensure that the cuts are actually implemented.
“It continues to be something that’s on the table,” Fannon said on a call on Wednesday. “It’s certainly something the president had weighed but he consistently said it was a lever he didn’t think he would need to pull.”
A global oversupply of oil will take time to be unwound even after the recent decision by the world’s biggest producers to enact unprecedented production cuts, Fannon said.
“There’s going to be a latency in terms of the supply buildup and how that works its way out. What we’re talking about is huge stores of a physical commodity that have amassed over time.”
Fannon spoke just days after Trump helped broker a deal whereby OPEC+ agreed to slash production by almost 10% to resuscitate a market reeling from coronavirus-related lockdowns and a damaging price war between Saudi Arabia and Russia.
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But with global demand estimates being revised down – most recently by the International Energy Agency on Wednesday — that’s raised concern that the cuts are too little too late, and oil has fallen back to an 18-year low in New York.
In the U.S., companies are already cutting back on spending and idling rigs, in what Trump has referred to as “automatic” cuts in response to the market slowdown rather than any mandated reductions.
“The entire shale revolution, as it were, was based out of the private sector and responding to the market,” Fannon said. “I have every confidence that the private sector will respond in the opposite direction.”