US downplays idea of domestic oil curtailments

President Donald Trump and his administration are giving no signs the US is considering curtailing domestic oil production as a way to persuade Opec+ members to cut output by 10mn b/d or more.

A top administration official today said it would be up to US producers to decide how to respond to the collapse in oil prices. That comes after Trump yesterday said he "did not discuss" cutting US oil production as part of discussions recently with Saudi crown prince Mohammad bin Salman and Russian president Vladimir Putin.

"As you would guess, oil companies seeing a decline in price are going to pull back in production," White House chief economic advisor Larry Kudlow said today during a televised interview. "But we do not dictate those decisions."

Trump is set to dive back into oil market issues later today during a meeting at the White House with top US oil company executives. Oil industry officials expect discussion will revolve on the need for relief from regulations and royalty payments, rather than a request to cut production.

Nymex WTI May light sweet crude futures yesterday surged by 25pc to $25.32/bl, after Trump described his expectation and "hope" that Saudi Arabia and Russia would curtail its output by 10mn-15mn bl, widely interpreted to mean 10mn-15mn b/d. Putin today confirmed a target of discussing cuts of around 10mn b/d during a 6 April video conference of Opec+ members.

US Opec delegates unlikely

Opec+ delegates are closely watching the Trump administration for signs of cooperation on production constraints. They are reluctant to cut output if the US — the world's top producer, which pumped a near-record 13mn b/d in the week ending on 27 March — fails to make its own contribution.

The US has also signaled it is unlikely to send a delegate to join in next week's Opec+ meeting, despite Saudi Arabia's call yesterday for "other countries" to participate in the video conference. The White House's Kudlow suggested that was unnecessary because Trump is already in discussions with the Saudi crown prince and Putin.

"He has been on the phone several times. Other people in the administration have been talking to their counterparts in" Saudi Arabia and Russia, Kudlow said. "We do that independently in America's interest. We do not have to go to the Opec meeting."

Although the US is non-committal on output cuts, state officials are starting to lay the groundwork for possible curtailments. The Texas Railroad Commission will likely hold a meeting on 14 March to discuss a request by shale producers who want to reinstate state restrictions on production for the first time in decades. In Oklahoma some producers are asking regulators there to consider curtailments.

State curtailment powers

Texas, Oklahoma, New Mexico and other oil-producing states have explicit authority to use "pro-rationing" policies to cut 7.6mn b/d of production based on market conditions, consulting firm Rapidan Energy Group said in a 31 March report. But states would have clear procedural, legal and political hurdles to put curtailments into effect.

If Opec+ and other major producers are unable to agree to steep curtailments, they might soon be forced to shut-in production for lack of storage. Oil markets are oversupplied by 18mn-22mn b/d, consulting firm Rystad Energy said today, which threatens to overwhelm the 700mn bl of global spare storage capacity.

"The question for the oil market right now is whether we will have 10mn b/d of voluntary production cuts in the second quarter or forced production cuts," Rystad oil markets head Bjornar Tonhaugen said.

By Chris Knight