News Analysis: Oil freeze failure weighs on U.S. economy

Disputes between Saudi Arabia and Iran failed the 23 oil suppliers' efforts to freeze oil production in Doha, Qatar on Sunday.

Analysts said in a global supply glut, the disputes made the possibility of reaching an oil freeze agreement "very low" in 2016, which may press the crude oil prices down further and put more weight on U.S. oil industry and economy.

OIL FREEZE FAILURE

"I do not expect it (Doha meeting) to achieve anything because the disputes between Iran and Saudi Arab are very serious," Charles Ebinger, a senior fellow on energy at the Brookings Institution, told Xinhua.

Ebinger said Saudi Arabia wanted every oil supplier to freeze its production at the January level, but Iran cannot accept it because the country wanted to recover its production to the level before the U.S. and European Union implemented sanctions against it.

In January, Iran's oil production and exports have reached 3.37 million barrels per day and 1.55 million barrels a day separately, but they are still 17 percent and 40 percent lower than the daily production and exports in 2011 before the sanction.

Besides production, Iran and Saudi Arabia also have political differences on Yemen, Syria and Iraq, said Ebinger, which made them hard to agree on freezing oil production in the future.

"I don't think they will reach an agreement (of freezing oil production), this June, this year," said Ebinger, a veteran working in oil and gas industry for over 30 years.

In addition to the disputes among major oil suppliers, the current oversupply of oil has also made countries unwilling to ink an oil freeze agreement, as reducing production means losing market share and less revenue.

"Now, the countries who supply oil, the U.S. included, each wanted to produce oil first and wanted anyone else to shut down and to freeze their oil," Deborah Gordon, director of Energy and Climate Program in Carnegie Endowment for International Peace, told Xinhua.

OIL INDUSTRY CHANGE

Failure to reach a freeze agreement will put more pressure on international crude oil prices on the downside, which is expected to impact the U.S. oil industry "very seriously" in a short run as the industry's financial position has been damaged much since the crude oil prices started to fall in the middle of 2014.

Since the summer of 2014, 60 oil companies in North America have filed bankruptcy, according to the data of law firm Haynes & Boone.

Deloitte's February report said about one third of U.S. oil and gas producers have high risk of filling.

"I think you will see U.S. shale oil production probably fall some 800,000 barrels a day in 2016," said Ebinger.

However, in the middle and long run this round of lower price may not affect U.S. oil industry, especially shale oil industry, much. It will even become "a good thing" for this sector because the efficiency of the industry will improve.

Gordon said in a short term some U.S. oil companies will go underwater and some will apply for bankruptcy, but "a new industry" will come out of it.

"When the prices were over 100 dollars a barrel, no one will question about the best practices in this sector, now it's all about efficiency," she said.

"They may change the players, but it doesn't change U.S. shale oil resources and opportunities over the long term," said Gordon.

U.S. ECONOMY AFFECTED

Lacking an oil freeze agreement may also affect U.S. economy to some extent this year, as the benefits of low oil prices may not counter the loss posted by U.S. oil industry on billions of investment reduction and laying off tens of thousands of workers.

"People are talking about losing something like about 100,000 jobs in a near term," said Ebinger.

JPMorgan expected lower oil prices would add about 0.7 percentage point to the U.S. economic growth in 2015 in last January.

However, in January this year, JPMorgan lowered the data to minus 0.3 percentage point of U.S. growth in 2015. For 2016, JPMorgan expected lower prices may only help U.S. growth by 0.1 percentage point.

Ebinger's expectation is more pessimistic. He said the loss of oil industry will cost 0.2 percentage point of U.S. gross domestic product growth in 2016, combined with the loss of relative sectors, U.S. economy will be dragged down by 0.5 percentage point. Endit