Texas plans hearing on oil production cuts

Texas regulators will likely hold a meeting on 14 April to discuss curtailing the state's crude production in an effort to help balance the market in the wake of the crash in crude prices and a drop in demand because of the coronavirus pandemic.

Regulators are "working toward" a 14 April "open meeting" which would include producers who are in favor and against the move, economists, statisticians, regulators and other exports to discuss how it might be done, said Texas Railroad Commission member Ryan Sitton in an online presentation today.

If the commission and industry come up with "a recipe that looks good," it could happen fairly quickly, he said. Regulators could vote on implementing a production cut as soon as 21 April.

Such a move would be the first time Texas has limited production in decades.

Sitton presented new models which showed that the world is oversupplied by 18mn b/d of crude and will run out of storage in 72 days unless things change.

He also said that Texas has been having informal discussions with other states that are also considering limits in production. Sitton also floated the idea that pro-rationing could be tied to disaster declarations and would end once a crisis is over.

Texas Railroad Commission chairman Wayne Christian said in an op-ed last week that any action taken by Texas "must be done in lockstep with other oil producing states and nations, ensuring that they cut production at similar times and in similar amounts."

Pioneer Natural Resources and Parsley Energy filed a motion earlier this week asking the commission for a hearing on possible production limits.

The companies said that oil marketers, such as Plains Marketing, and other purchasers have started requesting that suppliers take steps to reduce oil production in response to the coronavirus pandemic. Because of this, the ability of producers to sell oil for the month of May is becoming increasingly difficult. This massive oil glut will quickly overrun available storage capacity and drive down oil prices to shut-in levels, threatening investment, especially in Texas, they said.

Texas in 1928 began to use pro-rationing to restrict state oil output to stabilize markets and prices. But the commission dropped the approach decades ago and allowed the state's producers to decide when to drill, an approach that has enabled Texas production to increase to more than 5.3mn b/d at the end of last year.

Overall US crude inventories are starting to swell. US crude stocks rose by 13.8mn bl to 469.2mn bl last week, the Energy Information Administration (EIA) said today. It marked the tenth consecutive week of builds and was the largest weekly increase since October 2016.

By Eunice Bridges