{ "id": "IN11286", "type": "CRS Insight", "typeId": "INSIGHTS", "number": "IN11286", "active": true, "source": "EveryCRSReport.com", "versions": [ { "source": "EveryCRSReport.com", "id": 622582, "date": "2020-04-17", "retrieved": "2020-04-29T22:49:18.965118", "title": "Low Oil Prices: Prospects for Global Oil Market Balance ", "summary": "Reduced travel, slowing economic activity, and petroleum-product demand suppression related to the COVID-19 outbreak, combined with announced plans to increase crude oil supplies, created expectations of an imbalanced and significantly oversupplied near-term petroleum market. Oversupply expectations have contributed to oil prices declining nearly 60% since January. Some regional oil prices have been less than $10 per barrel. While low oil prices are generally positive for consumers, current price levels are causing financial stress for the U.S. oil sector and several policy options could be explored that might provide some degree of relief. \nMarket balance\u2014supply minus demand\u2014is one important factor that influences oil prices, refinery crude oil acquisition cost, and the price of consumer petroleum products (e.g., gasoline). Oil market characteristics\u2014generally inelastic supply and demand in the short term\u2014can contribute to market conditions that could result in volatile price movements (both up and down) when supply and demand are imbalanced by 1 to 2 million barrels per day (Mbpd) for a brief or extended period. Preliminary projections\u2014subject to revision\u2014indicate that global imbalance could be as high as 15 Mbpd in the second quarter (2Q) of 2020 (see Figure 1), including the Organization of the Petroleum Exporting Countries (OPEC) crude oil production agreement (see details below) that takes effect in May. Prolonged oversupply periods at this level could test petroleum storage and logistical limits and could further depress oil prices. However, current projections\u2014that include uncertain assumptions about demand recovery\u2014indicate that balance could move to an undersupplied state as early as 3Q2020.\nFigure 1. Quarterly Petroleum Market Supply/Demand Balance and WTI Spot Price\n2010-2020\n/\nSource: Compiled by CRS. West Texas Intermediate (WTI) spot price from Bloomberg L.P. Historical balances from the Energy Information Administration (EIA). Projections from International Energy Agency (IEA) and EIA April 2020 monthly reports. \nNotes: EIA balance projections do not include OPEC+ (including Russia and other non-OPEC countries) adjustments. IEA projections include OPEC+ adjustments. \nMarket Balancing Options\nBalancing petroleum markets during normal periods of economic activity is challenging due to demand uncertainties, unplanned supply outages, and geopolitical events. Generally, OPEC production decisions aim to manage oil supply in order to achieve its stated mission to stabilize markets. Since 2017, OPEC and a group of non-OPEC countries (collectively OPEC+), including Russia, have engaged in agreements to adjust production. Current oversupply expectations are primarily the result of demand suppression related to COVID-19. \nMarket balance in the short-term would largely depend on economic activity returning to pre-outbreak levels, the timeframe for which is uncertain as actual demand impacts are unknown. Addressing the supply side of estimated market imbalances could take the form of price-responsive adjustments, an OPEC+ production agreement, or some sort of government intervention. \nPrice-Responsive Supply Adjustments\nCurrent market and price conditions create challenges for all oil companies and oil-producing countries, including the U.S. oil sector. In the short-term, oil supply could be reduced by decreasing production from existing assets should price levels decline below marginal production costs. Efforts to manage financial impacts are reportedly happening at the company (e.g., capital expenditure reductions and employment adjustments) and country (e.g., budget and spending reductions) level. Reports indicate that U.S. drilling activity is declining, and EIA projects U.S. crude oil production in 2020 will be 500,000 bpd lower than 2019. While price-responsive adjustments could motivate efficiency within the oil sector, such an approach\u2014due to the uncertain timeframe for demand and price recovery\u2014could also have long-term adverse effects on some companies and the locations in which they operate.\nOPEC+ Production Agreement \nAfter failing to agree on an OPEC recommendation to further reduce oil production through 2020, OPEC+ subsequently announced an oil production agreement with the intent of stabilizing the oil market. Using October 2018 production levels as a baseline for most countries (Saudi Arabia and Russia are baselined at 11 Mbpd), the agreement would collectively reduce crude oil production by different amounts over various periods:\nMay 1-June 30, 2020: 9.7 Mbpd\nJuly 1-December 31, 2020: 7.7 Mbpd\nJanuary 1, 2021-April 30, 2022: 5.8 Mbpd\nThe agreement also calls on non-OPEC+ oil producers to contribute to market stabilization.\nGovernment Supply Intervention\nAmong countries outside of the OPEC+ group, some governments have intervened to manage production levels. These efforts have generally aimed to address domestic or regional market imbalances. For example, the government of Alberta, Canada, has an active oil production limit program. Instituted in December 2018, the curtailment policy aims to match production volumes with transportation\u2014pipeline and rail\u2014capacity in order to support regional prices that influence producer revenues and provincial royalties. \nOn April 10, 2020, energy ministers from G20 countries held a virtual meeting to discuss energy market stability and possible actions that might address energy sector issues. The meeting communique stated that the group was committing \u201cto take all the necessary and immediate measures to ensure energy market stability.\u201d To date, with the exception of Saudi Arabia, Russia, and Mexico\u2014each party to the OPEC+ agreement\u2014there have been no quantitative oil production commitments at the group or country level that would contribute towards addressing near-term market oversupply. \nHistorically, the U.S. federal government and some oil-producing states have engaged in efforts to curtail oil supply. Regulatory agencies in Oklahoma, Texas, Louisiana, and other states have prorationed\u2014similar to quotas\u2014oil supply within their respective jurisdictions. Those efforts, which are generally based on conservation and waste prevention authorities, essentially ended in the early 1970s as domestic demand exceeded domestic production. However, efforts are underway to consider reinstituting these state-level authorities. The Railroad Commission (RRC) of Texas held an open meeting\u2014in response to a filed complaint\u2014to discuss many different stakeholder views about prorationing oil production in the state. A similar appeal has been submitted to the Oklahoma Corporation Commission (OCC) and a hearing is reportedly scheduled for May 11, 2020. \nOil curtailment efforts at the federal level have generally been limited to prohibiting interstate transportation of oil volumes that exceed state production limits (\u201ccontraband oil\u201d), an existing Presidential authority (15 U.S.C. \u00a7715).", "type": "CRS Insight", "typeId": "INSIGHTS", "active": true, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "https://www.crs.gov/Reports/IN11286", "sha1": "c1d1016ff8d7d734e2f714a0486a4da20b8f1710", "filename": "files/20200417_IN11286_c1d1016ff8d7d734e2f714a0486a4da20b8f1710.html", "images": { "/products/Getimages/?directory=IN/ASPX/IN11286_files&id=/0.png": "files/20200417_IN11286_images_c8baeb4f27ca9ee208b19708d382f78a53163839.png" } } ], "topics": [ { "source": "IBCList", "id": 4780, "name": "Energy & Natural Resources Trade & Economics" }, { "source": "IBCList", "id": 4812, "name": "Fossil Energy" }, { "source": "IBCList", "id": 4907, "name": "Energy Policy" } ] }, { "source": "EveryCRSReport.com", "id": 622233, "date": "2020-04-13", "retrieved": "2020-04-13T22:17:23.761273", "title": "Low Oil Prices: Prospects for Global Oil Market Balance ", "summary": "Reduced travel, slowing economic activity, and petroleum-product demand suppression related to the COVID-19 outbreak, combined with announced plans to increase crude oil supplies, have created expectations of an imbalanced and significantly oversupplied near-term petroleum market. Oversupply expectations have contributed to oil prices declining nearly 60% since January. Some regional oil prices have been less than $10 per barrel. While low oil prices are generally positive for consumers, current price levels are causing financial stress for the U.S. oil sector and several policy options could be explored that might provide some degree of relief. \nMarket balance\u2014supply minus demand\u2014is one important factor that influences oil prices, refinery crude oil acquisition cost, and the price of consumer petroleum products (e.g., gasoline). Oil market characteristics\u2014generally inelastic supply and demand in the short term\u2014can contribute to market conditions that could result in volatile price movements (both up and down) when supply and demand are imbalanced by 1 to 2 million barrels per day (Mbpd) for a brief or extended period. Preliminary projections\u2014subject to revision\u2014indicate that global imbalance could be as high as 21.8 Mbpd in April 2020 (see Figure 1). Prolonged oversupply periods at this level could test petroleum storage and logistical limits and could further depress oil prices. \nFigure 1. Monthly Petroleum Market Supply/Demand Balance and WTI Spot Price\nJanuary 2014-June 2020\n/\nSource: Compiled by CRS. West Texas Intermediate (WTI) spot price from Bloomberg L.P. Actual market balances from Energy Intelligence Group, accessed through Bloomberg L.P. High and low market balance estimates are based on a CRS review of reporting for demand and market-surplus projections from various banks and market analysis firms. \nNotes: Market balance projections are preliminary and subject to revision as COVID-19 demand impacts and actual supply levels become clear. OPEC+ adjustments not reflected.\nMarket Balancing Options\nBalancing petroleum markets during normal periods of economic activity is challenging due to demand uncertainties, unplanned supply outages, and geopolitical events. Generally, Organization of the Petroleum Exporting Countries (OPEC) production decisions aim to manage oil supply in order to achieve its stated mission to stabilize markets. Since 2017, OPEC and a group of non-OPEC countries (collectively OPEC+), including Russia, have engaged in agreements to reduce production. Current oversupply expectations are primarily the result of demand suppression related to COVID-19. \nMarket balance in the short-term would largely depend on economic activity returning to pre-outbreak levels, the timeframe for which is uncertain as actual demand impacts are unknown. Addressing the supply side of estimated market imbalances could take the form of price-responsive adjustments, an OPEC+ production agreement, or some sort of government intervention. \nPrice-Responsive Supply Adjustments\nCurrent market and price conditions create challenges for all oil companies and oil-producing countries, including the U.S. oil sector. In the short-term, oil supply could be reduced by decreasing production from existing assets should price levels decline below marginal production costs. Efforts to manage financial impacts are reportedly happening at the company (e.g., capital expenditure reductions and employment adjustments) and country (e.g., budget/spending reductions) level. Additionally, reports indicate that U.S. drilling activity is declining. While price-responsive adjustments could motivate efficiency within the oil sector, such an approach\u2014due to the uncertain timeframe for demand and price recovery\u2014could also have long-term adverse effects on some companies and the locations in which they operate.\nOPEC+ Production Agreement \nOPEC+ could resume its collective supply management activities in an effort to stabilize oil markets. In March 2020, the group failed to agree on an OPEC recommendation to further reduce oil production through 2020. On April 10, 2020, OPEC+ announced an oil production agreement with the intent of stabilizing the oil market. Using October 2018 production levels as a baseline for most countries (Saudi Arabia and Russia are baselined at 11 Mbpd), the agreement would collectively reduce crude oil production by different amounts over various periods:\nMay 1-June 30, 2020: 9.7 Mbpd\nJuly 1-December 31, 2020: 7.7 Mbpd\nJanuary 1, 2021-April 30, 2022: 5.8 Mbpd\nThe agreement also calls on non-OPEC+ oil producers to contribute to market stabilization.\nGovernment Supply Intervention: Historical Perspective\nAmong countries outside of the OPEC+ group, some governments (state, provincial, and federal) have intervened to manage production levels. These efforts have generally aimed to address domestic or regional market imbalances. For example, the government of Alberta, Canada, has an active oil production limit program. Instituted in December 2018, the curtailment policy aims to match production volumes with transportation\u2014pipeline and rail\u2014capacity in order to support regional prices that influence producer revenues and provincial royalties. \nHistorically, the U.S. federal government and some oil-producing states have engaged in efforts to curtail oil supply, including deployment of state militia and the National Guard, state-level prorationing, interstate oil transport prohibitions, and federal production targets. In the 1930s\u2014a domestic oversupply period with regional prices as low as 10\u00a2 per barrel\u2014Congress enacted laws aimed at managing domestic oil output. Some examples include:\nNational Industrial Recovery Act (NIRA, P.L. 73-67): enacted in 1933 and held unconstitutional in 1935, NIRA authorized the President to prohibit interstate transportation of petroleum in excess of volumes allowed by state laws and regulations (\u201ccontraband oil\u201d). NIRA authorities were invoked to impose federal oil production quotas for each oil-producing state. \nHot Oil Act (P.L. 74-14, 15 U.S. Code \u00a7715): reinstated federal regulation of interstate transportation of \u201ccontraband oil.\u201d\nPublic Resolution 74-64: provided congressional consent for an interstate compact to conserve oil and gas. The Interstate Oil and Gas Compact Commission (IOGCC)\u2014originally conceived to address overproduction and depressed prices\u2014engages in resource conservation and its charter indicates that limiting production to stabilize prices is not an intended purpose. \nRegulatory agencies in Oklahoma, Texas, Louisiana, and other states have prorationed oil supply within their respective jurisdictions. Those efforts, which inherently provided some level of price support, essentially ended in the early 1970s as domestic demand exceeded domestic production. Reinstituting these authorities to address current oil market conditions\u2014a concept recently revisited\u2014could raise policy, legal, and administrative questions.", "type": "CRS Insight", "typeId": "INSIGHTS", "active": true, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "https://www.crs.gov/Reports/IN11286", "sha1": "2627886092b79e30a7139a7cb7e39fe29db948f4", "filename": "files/20200413_IN11286_2627886092b79e30a7139a7cb7e39fe29db948f4.html", "images": { "/products/Getimages/?directory=IN/ASPX/IN11286_files&id=/0.png": "files/20200413_IN11286_images_196726c6af42b094000a068ebba0b5da9c22d5ba.png" } } ], "topics": [] }, { "source": "EveryCRSReport.com", "id": 622222, "date": "2020-04-10", "retrieved": "2020-04-11T23:01:30.678107", "title": "Low Oil Prices: Prospects for Global Oil Market Balance ", "summary": "Reduced travel, slowing economic activity, and petroleum-product demand suppression related to the COVID-19 outbreak, combined with announced plans to increase crude oil supplies, have created expectations of an imbalanced and significantly oversupplied near-term petroleum market. Oversupply expectations have contributed to oil prices declining nearly 60% since January. Some regional oil prices have been less than $10 per barrel. While low oil prices are generally positive for consumers, current price levels are causing financial stress for the U.S. oil sector and several policy options could be explored that might provide some degree of relief. \nMarket balance\u2014supply minus demand\u2014is one important factor that influences oil prices, refinery crude oil acquisition cost, and the price of consumer petroleum products (e.g., gasoline). Oil market characteristics\u2014generally inelastic supply and demand in the short term\u2014can contribute to market conditions that could result in volatile price movements (both up and down) when supply and demand are imbalanced by 1 to 2 million barrels per day (Mbpd) for a brief or extended period. Preliminary projections\u2014subject to revision\u2014indicate that global imbalance could be as high as 21.8 Mbpd in April 2020 (see Figure 1). Prolonged oversupply periods at this level could test petroleum storage and logistical limits and could further depress oil prices. \nFigure 1. Monthly Petroleum Market Supply/Demand Balance and WTI Spot Price\nJanuary 2014-June 2020\n/\nSource: Compiled by CRS. West Texas Intermediate (WTI) spot price from Bloomberg L.P. Actual market balances from Energy Intelligence Group, accessed through Bloomberg L.P. High and low market balance estimates are based on a CRS review of reporting for demand and market-surplus projections from various banks and market analysis firms. \nNotes: Market balance projections are preliminary and subject to revision as COVID-19 demand impacts and actual supply levels become clear.\nMarket Balancing Options\nBalancing petroleum markets during normal periods of economic activity is challenging due to demand uncertainties, unplanned supply outages, and geopolitical events. Generally, Organization of the Petroleum Exporting Countries (OPEC) production decisions aim to manage oil supply in order to achieve its stated mission to stabilize markets. Since 2017, OPEC and a group of non-OPEC countries (collectively OPEC+), including Russia, have engaged in agreements to reduce production. Current oversupply expectations are primarily the result of demand suppression related to COVID-19. \nMarket balance in the short-term would largely depend on economic activity returning to pre-outbreak levels, the timeframe for which is uncertain as actual demand impacts are unknown. Addressing the supply side of estimated market imbalances could take the form of price-responsive adjustments, an OPEC+ production agreement, or some sort of government intervention. \nPrice-Responsive Supply Adjustments\nCurrent market and price conditions create challenges for all oil companies and oil-producing countries, including the U.S. oil sector. In the short-term, oil supply could be reduced by decreasing production from existing assets should price levels decline below marginal production costs. Efforts to manage financial impacts are reportedly happening at the company (e.g., capital expenditure reductions and employment adjustments) and country (e.g., budget/spending reductions) level. Additionally, reports indicate that U.S. drilling activity is declining. While price-responsive adjustments could motivate efficiency within the oil sector, such an approach\u2014due to the uncertain timeframe for demand and price recovery\u2014could also have long-term adverse effects on some companies and the locations in which they operate.\nOPEC+ Production Agreement \nOPEC+ could resume its collective supply management activities in an effort to stabilize oil markets. In March 2020, the group failed to agree on an OPEC recommendation to further reduce oil production through 2020. On April 9, 2020, OPEC+ announced a conditional oil production agreement with the intent of stabilizing the global oil market. Using October 2018 production levels as a baseline for most countries (Saudi Arabia and Russia are baselined at 11 Mbpd), the agreement would collectively reduce oil production by different amounts over various periods:\nMay 1-June 30, 2020: 10 Mbpd\nJuly 1-December 31, 2020: 8 Mbpd\nJanuary 1, 2021-April 30, 2022: 6 Mbpd\nThe agreement also calls on non-OPEC+ oil producers to contribute to market stabilization.\nGovernment Supply Intervention: Historical Perspective\nAmong countries outside of the OPEC+ group with an oil industry operated by private companies, some governments (state, provincial, and federal) have intervened to manage production levels. These efforts have generally aimed to address domestic or regional market imbalances. For example, the government of Alberta, Canada, has an active oil production limit program. Instituted in December 2018, the curtailment policy aims to match production volumes with transportation\u2014pipeline and rail\u2014capacity in order to support regional prices that influence producer revenues and provincial royalty receipts. \nHistorically, the U.S. federal government and some oil-producing states have engaged in efforts to curtail oil supply, including deployment of state militia (Oklahoma) and the National Guard (Texas), state-level prorationing, interstate oil transport prohibitions, and federal production targets. In the 1930s\u2014a domestic oversupply period with regional prices as low as 10\u00a2 per barrel\u2014Congress enacted laws aimed at managing domestic oil output. Some examples include:\nNational Industrial Recovery Act (NIRA, P.L. 73-67): enacted in 1933 and held unconstitutional in 1935, NIRA authorized the President to prohibit interstate transportation of petroleum in excess of volumes allowed by state laws and regulations (\u201ccontraband oil\u201d). NIRA authorities were invoked to impose federal oil production quotas for each oil-producing state. \nHot Oil Act (P.L. 74-14, 15 U.S. Code \u00a7715): reinstated federal regulation of interstate transportation of \u201ccontraband oil.\u201d\nPublic Resolution 74-64: provided congressional consent for an interstate compact to conserve oil and gas. The Interstate Oil and Gas Compact Commission (IOGCC)\u2014originally conceived to address overproduction and depressed prices\u2014engages in resource conservation and its charter indicates that limiting production to stabilize prices is not an intended purpose. \nRegulatory agencies in Oklahoma, Texas, Louisiana, and other states have prorationed oil supply within their respective jurisdictions. Those efforts, which inherently provided some level of price support, essentially ended in the early 1970s as domestic demand exceeded domestic production. Reinstituting these authorities to address current oil market conditions\u2014a concept recently revisited\u2014could raise policy, legal, and administrative questions.", "type": "CRS Insight", "typeId": "INSIGHTS", "active": true, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "https://www.crs.gov/Reports/IN11286", "sha1": "14ca2d34b230d348c2ca69e0ff05a99c8825fe5a", "filename": "files/20200410_IN11286_14ca2d34b230d348c2ca69e0ff05a99c8825fe5a.html", "images": { "/products/Getimages/?directory=IN/ASPX/IN11286_files&id=/0.png": "files/20200410_IN11286_images_196726c6af42b094000a068ebba0b5da9c22d5ba.png" } } ], "topics": [] }, { "source": "EveryCRSReport.com", "id": 621496, "date": "2020-04-01", "retrieved": "2020-04-01T22:09:14.950709", "title": "Low Oil Prices: Prospects for Global Oil Market Balance ", "summary": "Reduced travel, slowing economic activity, and petroleum-product demand suppression related to the COVID-19 outbreak, combined with announced plans to increase crude oil supplies, are creating expectations of an imbalanced and significantly oversupplied near-term petroleum market. Oversupply expectations have contributed to oil prices declining nearly 60% since January. Some regional oil prices have been less than $10 per barrel. While low oil prices are generally positive for consumers, current price levels are causing financial stress for the U.S. oil sector and several policy options could be explored that might provide some degree of relief. Additionally, the International Energy Agency (IEA) and the Organization of the Petroleum Exporting Countries (OPEC) have jointly expressed concern about the welfare of citizens in developing countries that rely on oil revenues.\nMarket balance\u2014supply minus demand\u2014is one important factor that influences oil prices, refinery crude oil acquisition cost, and the price of consumer petroleum products (e.g., gasoline). Oil market characteristics\u2014generally inelastic supply and demand in the short term\u2014can contribute to market conditions that could result in volatile price movements (both up and down) when supply and demand are imbalanced by 1 to 2 million barrels per day (Mbpd) for a brief or extended period. Preliminary projections\u2014subject to revision\u2014indicate that imbalance could be as high as 21.8 Mbpd in April 2020 (see Figure 1). Prolonged oversupply periods at this level could test petroleum storage and logistical limits and could further depress oil prices. \nFigure 1. Monthly Petroleum Market Supply/Demand Balance and WTI Spot Price\nJanuary 2014-June 2020\n/\nSource: Compiled by CRS. West Texas Intermediate (WTI) spot price from Bloomberg L.P. Actual market balances from Energy Intelligence Group, accessed through Bloomberg L.P. (subscription required). High and low market balance estimates are based on a CRS review of reporting for demand and market-surplus projections from various banks and market analysis firms. \nNotes: Market balance projections are preliminary and are subject to revision as COVID-19 demand impacts and actual supply levels become clear.\nMarket Balancing Options\nBalancing petroleum markets during normal periods of economic activity is challenging due to demand uncertainties, unplanned supply outages, and geopolitical events. Generally, OPEC production decisions aim to manage oil supply in order to achieve its stated mission to stabilize markets. Since 2017, OPEC and a group of non-OPEC countries (collectively OPEC+), including Russia, have engaged in voluntary agreements to reduce oil production. Current oversupply expectations are primarily the result of demand suppression related to COVID-19. \nMarket balance in the short-term would largely depend on economic activity returning to pre-outbreak levels, the timeframe for which is uncertain as actual demand impacts are unknown. Addressing the supply side of estimated market imbalances could take the form of price-responsive adjustments, an OPEC+ production agreement, or some sort of government intervention. \nPrice-Responsive Supply Adjustments\nCurrent market and price conditions create challenges for all oil companies and oil producing countries, including the U.S. oil sector. In the short-term, oil supply could be reduced by decreasing production from existing assets. Additionally, efforts to manage financial impacts are reportedly happening at the company (e.g., capital expenditure reductions and employment adjustments) and country (e.g., budget/spending reductions) level. While price-responsive adjustments could motivate efficiency within the oil sector, such an approach\u2014due to the uncertain timeframe for demand and price recovery\u2014could also have long-term adverse effects on some companies and the locations in which they operate.\nOPEC+ Production Agreement \nOPEC+ could resume its collective supply management activities in an effort to stabilize oil markets. However, the outlook for OPEC+ supply adjustments is uncertain after the group failed to agree on an OPEC recommendation to further reduce oil production through 2020. Exactly how a new supply agreement might be structured is uncertain. OPEC+ could execute its existing voluntary agreement\u2014that officially expires on March 31\u2014and produce oil at pre-outbreak levels. Doing so could temper oversupply expectations related to production increases announced by some OPEC+ members (Saudi Arabia and others). The Secretary of State has spoken with Saudi Arabia leadership about stabilizing energy markets.\nGovernment Supply Intervention: Historical Perspective\nAmong countries outside of the OPEC+ group with an oil industry operated by private companies, some governments (state, provincial, and federal) have intervened to manage production levels. These efforts have generally aimed to address domestic or regional market imbalances. For example, the government of Alberta, Canada, has an active oil production limit program. Instituted in December 2018, the curtailment policy aims to match production volumes with transportation\u2014pipeline and rail\u2014capacity in order to support regional prices that influence producer revenues and provincial royalty receipts. \nHistorically, the U.S. federal government and some oil-producing states have engaged in efforts to curtail oil supply, including deployment of state militia (Oklahoma) and the National Guard (Texas), state-level prorationing, interstate oil transport prohibitions, and federal production targets. In the 1930s\u2014a domestic oversupply period with regional prices as low as 10\u00a2 per barrel\u2014Congress enacted laws aimed at managing domestic oil output. Some examples include:\nNational Industrial Recovery Act (NIRA, P.L. 73-67): enacted in 1933 and held unconstitutional in 1935, NIRA authorized the President to prohibit interstate transportation of petroleum in excess of volumes allowed by state laws and regulations (\u201ccontraband oil\u201d). NIRA authorities were invoked to impose federal oil production quotas for each oil-producing state. \nHot Oil Act (P.L. 74-14, 15 U.S. Code \u00a7715): reinstated federal regulation of interstate transportation of \u201ccontraband oil.\u201d\nPublic Resolution 74-64: provided congressional consent for an interstate compact to conserve oil and gas. The Interstate Oil and Gas Compact Commission (IOGCC)\u2014originally conceived to address overproduction and depressed prices\u2014engages in resource conservation and its charter indicates that limiting production to stabilize prices is not an intended purpose. \nRegulatory agencies in Oklahoma, Texas, Louisiana, and other states have prorationed oil supply within their respective jurisdictions. Those efforts, which inherently provided some level of price support, essentially ended in the early 1970s as domestic demand exceeded domestic production. Reinstituting these authorities to address current oil market conditions\u2014a concept recently revisited\u2014could raise policy, legal, and administrative questions.", "type": "CRS Insight", "typeId": "INSIGHTS", "active": true, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "https://www.crs.gov/Reports/IN11286", "sha1": "edf65ac15de6dacd22ffb6c85b73a79e3e4e772e", "filename": "files/20200401_IN11286_edf65ac15de6dacd22ffb6c85b73a79e3e4e772e.html", "images": { "/products/Getimages/?directory=IN/ASPX/IN11286_files&id=/0.png": "files/20200401_IN11286_images_0203a44daa74280921d36ed1fb3d04163cb0d483.png" } } ], "topics": [] }, { "source": "EveryCRSReport.com", "id": 621121, "date": "2020-03-26", "retrieved": "2020-03-28T22:02:45.125216", "title": "Low Oil Prices: Prospects for Global Oil Market Balance ", "summary": "Reduced travel, slowing economic activity, and petroleum-product demand suppression related to the COVID-19 outbreak, combined with announced plans to increase crude oil supplies, are creating expectations of an imbalanced and significantly oversupplied near-term petroleum market. Oversupply expectations have contributed to oil prices declining nearly 60% since January. Some regional oil prices have been less than $10 per barrel. While low oil prices are generally positive for consumers, current price levels are causing financial stress for the U.S. oil sector and several policy options could be explored that might provide some degree of relief. Additionally, the International Energy Agency (IEA) and the Organization of the Petroleum Exporting Countries (OPEC) have jointly expressed concern about the welfare of citizens in developing countries that rely on oil revenues.\nMarket balance\u2014supply minus demand\u2014is one important factor that influences oil prices, refinery crude oil acquisition cost, and the price of consumer petroleum products (e.g., gasoline). Oil market characteristics\u2014generally inelastic supply and demand in the short term\u2014can contribute to market conditions that could result in volatile price movements (both up and down) when supply and demand are imbalanced by 1 to 2 million barrels per day (Mbpd) for a brief or extended period. Preliminary projections\u2014subject to revision\u2014indicate that imbalance could be as high as 12 Mbpd in the second quarter of 2020 (see Figure 1). Prolonged oversupply periods at this level could test petroleum storage and logistical limits and could further depress oil prices. \nFigure 1. Monthly Petroleum Market Supply/Demand Balance and WTI Spot Price\nJanuary 2014-June 2020\n/\nSource: Compiled by CRS. West Texas Intermediate (WTI) spot price from Bloomberg L.P. Actual market balances from Energy Intelligence Group, accessed through Bloomberg L.P. (subscription required). High and low market balance estimates are based on a CRS review of reporting for demand and market-surplus projections from various banks and market analysis firms. \nNotes: WTI March spot price on March 25, 2020. Market balance projections are preliminary and are subject to revision as COVID-19 demand impacts and actual supply levels become clear.\nMarket Balancing Options\nBalancing petroleum markets during normal periods of economic activity is challenging due to demand uncertainties, unplanned supply outages, and geopolitical events. Generally, OPEC production decisions aim to manage oil supply in order to achieve its stated mission to stabilize markets. Since 2017, OPEC and a group of non-OPEC countries (collectively OPEC+), including Russia, have engaged in voluntary agreements to reduce oil production. Current oversupply expectations are primarily the result of demand suppression related to COVID-19. \nMarket balance in the short-term would largely depend on economic activity returning to pre-outbreak levels, the timeframe for which is uncertain as actual demand impacts are unknown. Addressing the supply side of estimated market imbalances could take the form of price-responsive adjustments, an OPEC+ production agreement, or some sort of government intervention. \nPrice-Responsive Supply Adjustments\nCurrent market and price conditions create challenges for all oil companies and oil producing countries, including the U.S. oil sector. Efforts to manage financial impacts are reportedly happening at the company (e.g., capital expenditure reductions and employment adjustments) and country (e.g., budget/spending reductions) level. While price-responsive adjustments could motivate efficiency within the oil sector, such an approach\u2014due to the uncertain timeframe for demand and price recovery\u2014could also have long-term adverse effects on some companies and the locations in which they operate.\nOPEC+ Production Agreement \nOPEC+ could resume its collective supply management activities in an effort to stabilize oil markets. However, the outlook for OPEC+ supply adjustments is uncertain after the group failed to agree on an OPEC recommendation to further reduce oil production through 2020. Exactly how a new supply agreement might be structured is uncertain. OPEC+ could execute its existing voluntary agreement\u2014that officially expires on March 31\u2014and produce oil at pre-outbreak levels. Doing so could temper oversupply expectations related to production increases announced by some OPEC+ members (Saudi Arabia and others). The Secretary of State has spoken with Saudi Arabia leadership about stabilizing energy markets.\nGovernment Supply Intervention: Historical Perspective\nAmong countries outside of the OPEC+ group with an oil industry operated by private companies, some governments (state, provincial, and federal) have intervened to manage production levels. These efforts have generally aimed to address domestic or regional market imbalances. For example, the government of Alberta, Canada, has an active oil production limit program. Instituted in December 2018, the curtailment policy aims to match production volumes with transportation\u2014pipeline and rail\u2014capacity in order to support regional prices that influence producer revenues and provincial royalty receipts. \nHistorically, the U.S. federal government and some oil-producing states have engaged in efforts to curtail oil supply, including deployment of state militia (Oklahoma) and the National Guard (Texas), state-level prorationing, interstate oil transport prohibitions, and federal production targets. In the 1930s\u2014a domestic oversupply period with regional prices as low as 10\u00a2 per barrel\u2014Congress enacted laws aimed at managing domestic oil output. Some examples include:\nNational Industrial Recovery Act (NIRA, P.L. 73-67): enacted in 1933 and held unconstitutional in 1935, NIRA authorized the President to prohibit interstate transportation of petroleum in excess of volumes allowed by state laws and regulations (\u201ccontraband oil\u201d). NIRA authorities were invoked to impose federal oil production quotas for each oil-producing state. \nHot Oil Act (P.L. 74-14, 15 U.S. Code \u00a7715): reinstated federal regulation of interstate transportation of \u201ccontraband oil.\u201d\nPublic Resolution 74-64: provided congressional consent for an interstate compact to conserve oil and gas. The Interstate Oil and Gas Compact Commission (IOGCC)\u2014originally conceived to address overproduction and depressed prices\u2014engages in resource conservation and its charter indicates that limiting production to stabilize prices is not an intended purpose. \nRegulatory agencies in Oklahoma, Texas, Louisiana, and other states have prorationed oil supply within their respective jurisdictions. Those efforts, which inherently provided some level of price support, essentially ended in the early 1970s as domestic demand exceeded domestic production. Reinstituting these authorities to address current oil market conditions\u2014a concept recently revisited\u2014could raise policy, legal, and administrative questions.", "type": "CRS Insight", "typeId": "INSIGHTS", "active": true, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "https://www.crs.gov/Reports/IN11286", "sha1": "732a3e75d830b7b3c8bf4d4cad55d7611a95fda9", "filename": "files/20200326_IN11286_732a3e75d830b7b3c8bf4d4cad55d7611a95fda9.html", "images": { "/products/Getimages/?directory=IN/ASPX/IN11286_files&id=/0.png": "files/20200326_IN11286_images_743f60d9d585aa19224918e52096547fce6961f6.png" } } ], "topics": [] } ], "topics": [ "CRS Insights" ] }