Letter: Collapse of US shale is a disaster for Trump

From John A Mathews and Dr Michael Peck

This letter was originally published on Financial Times at: https://www.ft.com/content/c2a2d739-bd67-414d-9268-b5c9ee2638e2

We agree with Derek Brower (Boom to bust in the US shale heartlands, May 23) that US shale oil has taken a major hit as a result of the Saudi and Russian-ignited oil price war and the collapse in demand triggered by the Covid-19 pandemic. This will clearly have a big impact on global trade in oil, the world’s most lucrative trading industry, including on the future evolution of US-China trade hostilities.

The surge in oil supply unleashed by Russia and Saudi Arabia in April was clearly aimed not just at keeping supplies flowing to counter the impact of the global pandemic, but directly at the US shale oil industry itself which depends on high prices to cover its high costs.

We suggest that the US-China trade hostilities loom as less significant when compared with the potential collapse of the US shale sector triggered by Russia and Saudi Arabia — a disaster for the Trump-inspired US energy strategy.

China meanwhile continues with its strategy of substituting fossil fuels by manufactured renewable energy alternatives — a strategy untouched by the current oil industry ructions.

John A Mathews

Professor Emeritus in the Macquarie Business School, Macquarie University

Dr Michael Peck

University of Sydney Business School, Sydney, Australia