Explainer: Antitrust law will not get in the way of U.S. acting to raise oil prices

WASHINGTON (Reuters) - It is illegal for oil producers to meet to discuss pushing up oil prices under U.S. antitrust law, but perfectly legal if state regulators or the federal government set lower production levels for them, legal experts said.

FILE PHOTO: A maze of crude oil pipes and valves is pictured during a tour by the Department of Energy at the Strategic Petroleum Reserve in Freeport, Texas, U.S. June 9, 2016. REUTERS/Richard Carson/File Photo

Oil and gas companies have been gushing red ink and cutting tens of thousands of workers as prices tumble, prompting regulators in Texas, the largest U.S. oil-producing state, to consider calling for a production cut.

On Monday the May futures contract for U.S. crude closed at minus $37.63 a barrel as traders desperate to avoid owning oil paid others to take it. Global oil demand has fallen by as much as a third as the spread of the new coronavirus has forced more than 3 billion people to go into lockdown.

In response, U.S. President Donald Trump on Tuesday called on the federal government to come up with a way to bail out the U.S. oil and gas industry.

Texas oil and gas regulators also met but delayed a decision on whether to enforce cuts, which would be the first since the 1970s. They will revisit the issue on May 5.

Trump had previously called on top producers to stop a market rout caused by the new coronavirus pandemic, as OPEC and its allies work on a deal for an unprecedented oil production cut equivalent to around 10% of global supply.

“Trump himself, other federal officials, and Congress cannot violate antitrust (law) by any official actions they take. It doesn’t apply to them,” said Chris Sagers, who teaches antitrust at the Cleveland-Marshall College of Law.

This kind of conduct in private industry would not be permitted, but under the state action doctrine it is allowed if it is done under the authority of a government body like a commission, said Barbara Sicalides, an antitrust expert at Pepper Hamilton LLP.

The doctrine is based on a 1943 Supreme Court decision that says federal antitrust laws do not apply to actions taken by a state body or agency. The court based its ruling on the view that nothing in antitrust laws appeared to restrain state commissions if acting in accordance with their mission.

The Texas Legislature established the Railroad Commission of Texas in 1891, and began extending its jurisdiction to the oil industry in 1917 when it declared pipelines to be common carriers who should ship oil from any company. The commission ordered its first production cut in 1928, and its last in 1976 when it ordered production trimmed by 7,500 barrels per day, about 1%, at a time when Texas production was sliding and imports were increasing.

The Oklahoma Energy Producers Alliance has also urged its state’s regulator, the Oklahoma Corporation Commission, to curtail crude oil production. The commission has meetings coming up to consider two applications to reduce oil output in the state.

Reporting by Diane Bartz; editing by Richard Pullin