A Texas oil regulator is set to meet on Tuesday to vote on whether the state will mandate oil production cuts while oil prices continue the longest run of daily gains in more than nine months.
Texas Railroad Commissioner Ryan Sitton said on Monday that the three-member agency wasn’t prepared to vote on curtailing output in a process known as “pro-rationing,” in an interview on Bloomberg TV.
“At this point we still are not ready to act, and so it’s too late, so there is no proposal to make,” Sitton said. “I think that pro-ration is now dead.”
Sitton’s comments come after the key oil-producing state comes to the end of a weeks-long disagreement on whether US states should mimic OPEC and force production caps amid a historic collapse in prices due to the coronavirus pandemic.
Many of the world’s leading oil producers struck a historic oil output cut deal in early April to reduce their output by more than 20 percent.
“We have been reliant on OPEC and OPEC+ since 2016 … We have stolen market share from OPEC+,” Pioneer Natural Resources CEO Scott Sheffield told the Commission at a meeting in mid-April.
Other US producers have argued against production caps, stating that output would fall in line with demand. Diamondback Energy Inc., Parsley Energy Inc. and Centennial Resource Development Inc. on Monday became the latest Permian Basin shale explorers to say they were dialing back on production.
“Several operators, both US shale and offshore, now announce shut-ins, a seemingly bullish development … However, we yet only observe a fraction of the required shut-ins that are coming during May to avoid critical congestion at storage and shipping terminals,” said Rystad Energy’s Head of Analysis Per Magnus Nysveen.
Tanks begin to top
Global storage for crude is running critically low, with many countries already out of space and tankers idling at sea waiting to deposit unneeded oil.
On Tuesday, Indian Oil Minister Dharmendra Pradhan said that the country now had more than 50 million barrels of crude sitting on-board tankers at sea, as storage remains effectively full in India.
Meanwhile in late April, the US Coast Guard noted that there were an unprecedented 27 vessels waiting off the coast of Southern California filled with oil with nowhere to deposit. The oil off California alone would be enough to satisfy 20 percent of the world’s consumption, according to Bloomberg.
Oil prices meanwhile have steadily marched up, with Brent topping $30 a barrel for the first time since April 15. The US WTI benchmark also increased to around $24 a barrel, following a dramatic plunge into negative pricing last month.
“[The] key reason behind the price strengthening is regional traffic data, which indicate the demand bottom is behind us. Lockdowns are slowly easing across most regions and in the US. Crude markets are also getting less off-balance, but we remain cautious that a balance cannot be achieved without quicker shutdown of fields and wells,” Nysveen added.