U.S., Canadian Oil Producers Cut Operations After Prices Plummet Due to Russia-Saudi Oil War, Coronavirus Slowdown

North American oil producers and service companies are cutting operations in response to historically low prices, driven by the ongoing Saudi Arabia-Russia oil war and suppressed demand resulting from the COVID-19 coronavirus pandemic.

Oil prices collapsed earlier this month when Moscow and Riyadh split on proposed production caps, designed to boost oil prices amid a drop in demand caused by coronavirus. Russia refused to fall in line behind the Saudi-dominated OPEC cartel, ending its three-year collaboration with the group under the OPEC-Plus agreement.

In response, the Saudis upped production and flooded the market with oil, hoping the sudden crash in prices would hurt Moscow enough to force compliance.

U.S. producers have redefined the global oil market in recent years, riding a shale wave to make the U.S. the world's leading producer. But much of that growth has been achieved on a bed of debt, and with prices spiraling downwards some producers are facing bankruptcy.

Producers are now being forced to cut back operations to survive the storm, while some are also pressuring President Donald Trump and lawmakers to step in to provide financial aid and pressure Saudi Arabia and Russia to call time on their dispute.

Chevron, for example, announced Tuesday that it would halve spending at the Permian Basin oil field—America's largest shale region, stretching across western Texas and southeastern New Mexico. This means the firm will cut production by some 125,000 barrels per day, according to Bloomberg, around 2.5 percent of the region's total capacity.

The company also said it would freeze its $5 billion-per-year share buyback scheme and lower projected 2020 capital spending by 20 percent—equivalent to some $4 billion.

Other North American producers are taking similar steps. In Canada, for example, Suncor Energy—one of the country's largest oil-sands operators—said it would close one of its two trains at the Fort Hills mine in the province of Alberta, where some 194,000 barrels of oil are extracted daily.

The firm is also putting planned well openings in MacKay River on hold.

It is not just the producers who are cutting back operations. Schlumberger, the largest oilfield service company in the world, has announced plans to cut as much as 30 percent of its budget in the face of falling prices and coronavirus, according to The Houston Chronicle. The company is also planning to lay off workers and reduce wages for those who remain.

Tuesday's stimulus package approved by Congress and the White House offered some encouragement to oil producers and helped drive a limited price increase, but Russia and Saudi Arabia show no signs of ending their conflict. In the meantime, the coronavirus pandemic is worsening, wreaking havoc on global economies.

Trump said last week he would intervene in the Russia-Saudi price war at "the appropriate time," and The Wall Street Journal reported that the White House was considering applying diplomatic pressure on Riyadh and imposing fresh sanctions on Moscow to try and end the crisis.

Global oil prices fell as low as $25 per barrel last week and are still languishing below $30 per barrel—down from above $65 in January. Credit ratings agency S&P has said the price could fall as low as $10 this year.

oil, shale, US, Russia, Saudi Arabia, coronavirus
This file photo shows workers extracting oil from wells in the Permian Basin in Midland, Texas on May 5, 2018. Benjamin Lowy/Getty Images/Getty