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Texas Oil Regulators Could Mandate 20% Output Cuts

With crude prices plummeting to 20 year lows and a local industry in shambles, Texas oil regulators are contemplating the unthinkable: cutting statewide oil production for the first time since the 1970s. 

The Railroad Commission of Texas will hold a meeting on Tuesday that could potentially result in mandated caps on the state's oil output after watching WTI prices collapse by more than 60 percent so far this year.  It also comes as domestic oil storage quickly approaches its absolute limit. Ryan Sitton, one of three commissioners at the regulatory body, noted that significant cuts could “stave off a total oil industry meltdown.” 

Such a radical decision, which needs the authorization of two of the three RCC participants, is being weighed against a backdrop of immense pressure as oil nations come together to attempt to rebalance crude markets before it's too late. 

Today's decision by the RCC, which has the power to mandate output cuts in the state, could result in a mandate which requires larger oil producers to cut output by 20 percent starting on the first of May.

The current decline in oil prices, triggered by a geopolitical spat between two of the world's most influential oil producers, Russia and  Saudi Arabia, in addition to the demand destruction sparked by the COVID-19 pandemic, resulted in an unprecedented glut which has Texas regulators weighing the possibility of something that goes against their very grain; meddling in the free market.

The meeting will come just after the historic deal reached by the Organization of the Oil Exporting Countries and its allies, referred to as OPEC+, to reduce oil production by 9.7 million barrels daily through April 2022.

Big Oil Speaks Out

Exxon is not exactly a fan of the idea, with the company’s shale boss, Staale Gjervik calling the free market “the most efficient means of sorting out the extreme supply and demand imbalances we are now experiencing.”

Gjervik also noted that “Proposals to impose quotas or mandatory production cuts will lead to unintended consequences for the state to the benefit of competing states in the U.S. and countries abroad." 

By Michael Kern for Oilprice.com

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  • Dewey Kendrick on April 14 2020 said:
    Once domestic storage is full, companies will have no other choice but to shut wells in and keep production in the ground. I believe the best option is to let the free market work itself out, as a production cut could not be efficiently regulated anyhow. However, the USA could enforce exports, by shutting down terminals, and implementing export tariffs. This in turn would benefit the the global supply glut and countries could save tremendous amounts of $ on shipping costs considering the limited supply of tankers.
  • gary bryck on April 13 2020 said:
    Should the TRC decide to cut oil production, it would not be the "unthinkable". From 1932 until the 1960's when OPEC became the global swing oil producer, the TRC curtailed oil production in order to "conserve the resources of Texas". Yes this was a veiled approach to limiting production to support prices in the interests of the State of Texas. This curtailment policy ensured that the state received fair oil royalties from the extraction of this scarce resource, a policy which helped raise revenues to pay for remediation of abandoned oil wells, other environmental costs imposed on the state by the oil industry, schools, highways, etc.

    Congratulations to Commissioner Sitton for being proactive in resurrecting an old curtailment policy in the interests of Texas, its taxpayers, its oil workers and its oil economy. May the TRC have learned from history and make the correct decision tomorrow.

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