Pipeline Operators In Texas Urge Producers To Stop Pumping

U.S. pipeline operators have issued a warning to some oil producers operating in Texas: reduce production rates because storage is filling up, a Texas Railroad Commissioner said in a tweet.

"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. We need to get in front of this," Ryan Sitton wrote on Saturday.

Oil prices have continued to decline, with West Texas Intermediate trading at $20.42 a barrel at the time of writing and Brent crude at $26.64 a barrel. Upward potential remains extremely limited as the coronavirus outbreak in the United States has dampened demand for fuels. According to the EIA, demand for gasoline in the second week of March fell by more than 800,000 bpd.

Demand for fuels is likely to continue down as the number of diagnosed Covid-19 cases continues up, with the U.S. now leading the world with a total of more than 140,000 cases.

Refining margins also crashed, shedding 95 percent on a single day earlier this month, according to a Reuters report. The drop signaled pessimism about the immediate future of fuel demand in tune with expectations about oil demand.

"You're facing a situation where there's so much demand destruction from people staying home because of COVID-19 and there's so much oil flowing right now with no place to go," Commissioner Sitton told the Houston Chronicle. "The supply chain is facing a problem and it backs up all the way to the gas stations."

The storage problem is not unique to the United States. The whole world is running out of storage space for oil as the biggest buyers of the commodity are unable to take advantage of historically low prices by stocking up, because their demand has been destroyed by lockdowns and travel bans, too, and their tanks are full.

By Irina Slav for Oilprice.com

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