The oil producing states of Texas, Alaska, Oklahoma, and North Dakota announced on Friday that they are seceding from the Union and forming a new republic in order to join OPEC, citing U.S. antitrust laws that prevent US companies from collaborating on prices as the reason behind their decision.
Expectations for a second coronavirus wave and recent news of lockdowns across Europe pushed oil prices lower in recent weeks, triggering fears across the industry of a repeat of the April oil market crash when WTI fell to negative $35 per barrel, well below the breakeven price of most US oil producers according to an analysis by The Stonk Market.
The growth of US shale production over the past decade led to seismic shifts in the global oil industry, which prompted the major oil producing countries of OPEC to defend market share at all costs, pushing oil prices to multi-year lows. It was not until OPEC+ (which includes Russia) came to an agreement on production cuts did oil markets stabilize.
However, the demand shock caused by the Covid-19 pandemic, along with increased competition amongst OPEC+ producers earlier this year resulted in the negative April prices and was followed by a wave of bankruptcies across the US oil industry.
To preempt this scenario, the four seceding states – henceforth known as the Union of Seceding Shale Republics (USSR) – decided it is time for the global oil industry to put an end to its destructive competition and coordinate efforts to stabilize the oil market. The group also believes the industry must act collectively to fend off other threats such as environmentalists and advances in electric vehicle technology.
Governors of the four states sent a 5-page letter to Russian President Vladimir Putin encouraging Russia to follow their decision to join OPEC as an official member. The carefully worded letter aimed to instill a sense of urgency that the governors hoped the Russian president would respond to, beginning with words of caution:
“Mr. President, a specter is haunting the global oil industry – the specter of environmentalism. We the powers of the global oil industry must enter into a holy alliance to exorcise this specter…”
The letter goes on to describe the benefits of OPEC membership and the necessity for oil producers of the world to unite.
The secession announcement has significant implications on the upcoming election as all four states historically voted Republican, explaining Vice President Joe Biden’s statement of best wishes for the newly formed USSR.
While Donald Trump publicly criticized the decision, sources say he had been negotiating with the governors on the exact date of the secession, offering to give them the oil-producing state of California in exchange for them agreeing to delay the official move until after the elections. Discussions broke down when the governors learned Trump was making the same offer to Putin in exchange for dirt on Biden.