Pipeline firms ask Texas producers to cut oil output, storage low: Regulator
Texas producers are beginning to receive requests from pipelines to reduce output as storage begins to run low, according to a tweet from Texas Railroad Commissioner Ryan Sitton.
Oil exporters are facing the worst market crisis in modern history as prices freefall. US WTI crude futures fell to around $21 on Friday, down around 65 percent from earlier in the year, while Brent crude settled near $25, down over 60 percent.
Got word yesterday that some Texas producers are starting to get letters from shippers (pipelines) asking for oil production cuts because they are out of storage.— Ryan Sitton (@RyanSitton) March 28, 2020
We need to get in front of this. #txenergy
The Texas Railroad Commission, which despite its name regulates the oil industry, have reportedly been considering weighing in for the first time in nearly 50 years and curbing crude production.
Sitton said last week that the Secretary General of the Organization of Petroleum Exporting Countries (OPEC) Mohammed Barkindo had invited him to attend an OPEC meeting in June. Analysts have questioned if this would be the first step in a production cut agreement between OPEC, Texas, and other producers.
Prices have collapsed since Russia failed to agree to a further oil output cut with the Organization of Petroleum Exporting Countries (OPEC) in early March, triggering an oil price war for market share.
Saudi Arabia later announced plans to hike output by 2.5 million barrels per day (bpd) to 12.3 million bpd, with other producers, including the UAE, announcing they too would increase production.
US shale oil firms have been among the first to suffer the low price environment, as unlike many other firms they cannot rely on state support. The companies have a significantly higher price at which they can pump oil out of the ground at between $43 to $55 per barrel – compared to Saudi Aramco, the cheapest producer, at just around $3 per barrel.
Russia’s motivation for breaking with the three-year OPEC+ arrangement, however, was likely aimed at US shale oil producers. Shale oil has come to dominate markets in recent years – the US moved to become the biggest exporter of crude in the world. However, shale oil firms are highly leveraged, and have high breakeven figures as a result to service debt.
“Russia’s decision to pull out of the OPEC+ agreement triggered the price collapse, and was squarely targeted at the shale sector given its current financial distress,” said MUFG Bank in a recent report.