Oil prices are likely at a bottom as the world grapples with the coronavirus pandemic, US Energy Secretary Dan Brouillette told CNBC.
He pointed out that the historic agreement signed by OPEC and its oil-producing allies to reduce 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.
Reports show that oil prices are down more than 55% year-to-date. The industry has experienced the worst price plunges in nearly two decades before record supply, diminishing storage space, and global demand shrunk by coronavirus lockdowns worldwide.
Oil prices will be even lower if no agreement had been signed, Brouillette told CNBC’s Hadley Gamble in a phone interview on 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," he added.
However, despite the cut agreement, oil prices still dropped by 10% on Tuesday as investors remained pessimistic that the cuts will address the demand shock brought by the COVID-19 outbreak. A price bounce was not the aim, Brouillette told CNBC.
“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.”
He is also optimistic about 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.”
"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," he added.
The secretary commended US President Donald Trump's aggression when it comes to pressuring the Saudis and Russians to change course, noting that the president can make more aggressive decisions 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.”
