API Opposes Government Intervention in Response to Market Downturn

Sam Winstel
Posted March 25, 2020

There seems to be no shortage of flawed ideas in response to ongoing crude oil market instability.

Last week, a U.S. senator asked the Commerce Department to impose tariffs on imported crude oil, and a Texas state energy regulator called for statewide oil production quotas – isolating measures that don’t serve the interests of American consumers and don’t help our industry do its job of supplying the country with needed energy.

Both actions are inconsistent with free-market principles that best serve consumers and the economy, providing the most efficient allocation of resources across countries that ultimately leads to long-term stability and the opportunity for industry-wide growth.

While current conditions are challenging – heightened by the coronavirus – anti-free market policies are the wrong answer. Tariffs delay energy projects by increasing the price of imported production materials, and quotas introduce additional operating costs.

The U.S. has a long history of championing competitive markets and shouldn’t abandon these principles during periods of disruption. The OPEC+ nations’ move to increase global energy supplies – despite lower demand amid the COVID-19 pandemic – is merely a self-serving reaction to America’s new paradigm as a global energy superpower.

API President and CEO Mike Sommers recently explained:

“We have always supported the market to be an arbiter of the price of oil and gas, and during times of crisis it is not appropriate to abandon those principles… Because we are in a global marketplace, imposing sanctions on any country for free flow of crude across borders would be very damaging to the broader oil and gas industry.”

The U.S. is the world’s leading producer of natural gas and oil, and a net exporter of total energy, but domestic operators still rely on certain imported products. For this reason, tariffs inevitably increase costs for American refiners, introducing added uncertainty into global supply chains – and they have historically raised prices for consumers.

API has consistently advocated for trade deals that support the integrated and interdependent energy marketplace in North America and around the world. Initiating a trade dispute would be an industry about-face, with potential economic and political consequences down the line. Instead, we urge lawmakers to resolve these issues diplomatically and engage with international partners to address the current supply glut.

Unfortunately, others have proposed limiting production for Texas producers, aligning the state with the international oil cartel led by Saudi Arabia – effectively creating “TexOPEC.” By imposing crude oil quotas, the regulators would penalize low-cost producers while supporting the least efficient ones, and such actions would not stop other states or countries from filling the void.

API Senior Vice President of Policy, Economics and Regulatory Affairs Frank Macchiarola explained:

“The challenges we face today are unprecedented, but they are not an excuse to walk away from the free market principles that have guided this industry for more than a century. Make no mistake, production quotas would be a shortsighted, knee jerk reaction with disastrous consequences for the future of U.S. energy leadership.” 

Even during periods of economic and geopolitical duress, global energy demand has been robust, and although short-term demand for petroleum products is low, longer-term forecasts demonstrate the importance of natural gas and oil through 2050 and beyond. As a resilient and innovative sector, the energy industry is prepared to endure these challenges and emerge stronger and more productive than ever before.