Texas Railroad Commission chairman opposes OPEC-style oil production cuts

Washington — The chairman of the Texas Railroad Commission said Friday that he was opposed to imposing government-mandated oil production cuts as some US shale producers, struggling with a historic collapse in prices, have been requesting to prevent a market glut.

Requiring operators in the prolific Permian Basin to throttle back output to prop up prices would be a failing strategy, allowing other producers to fill the void and take Texas' market share, Wayne Christian said in a statement.

His comments come as another commissioner, Ryan Sitton, whose term expires at the end of the year, said he spoke Friday with OPEC Secretary General Mohammed Barkindo on the prospects of an internationally coordinated production cut.

INTERVIEW: First Texas oil limits in decades look more likely as prices drop

"Texas does not operate in a vacuum," Christian said, describing himself as a "free-market conservative" opposed to government controls. "If we prorate our oil, there is no guarantee other nations, or even states, will follow suit."

The Texas Railroad Commission has not imposed supply curbs on its producers since 1972, and Christian said he doubted whether staff at the agency would have the experience and technical know-how to implement another one properly.

Sitton, however, has been pushing the idea of coordinating a production cut with Saudi Arabia and discussed the idea on the phone with Barkindo. Saudi Arabia is OPEC's largest producer by far and announced plans to flood the market after the bloc failed earlier this month to agree with erstwhile ally Russia on deeper cuts in response to the coronavirus outbreak.

"In theory, Texas could cut production by 10%, and if Saudi Arabia is willing to cut production by 10% from its pre-pandemic levels and Russia is willing to do the same, it would return the market to pre-crisis levels (and only somewhat oversupplied)," Sitton wrote in an opinion piece for Bloomberg.

Barkindo did not respond for a request for comment, but Sitton in a tweet said that they agreed "an international deal must get done to ensure economic stability as we recover from COVID-19."

He also said in his tweet that Barkindo had invited him to address OPEC's next meeting, which is scheduled for June 9 in Vienna.

A spokesman for the Saudi energy ministry declined to comment on the proposal, as well as the prospects for engaging with US officials on a production deal.

Analysts cautioned against Sitton's proposal, pointing out that he was both a lame duck commissioner, losing his re-election campaign in this month's Republican primary, and has a thorny relationship with the other two commissioners.

48 YEARS WITHOUT LIMITS

The commission lifted decades-long limits on oil production for the last time in 1972 and some of Texas' top oil producers, including Pioneer Natural Resources, have requested consideration of their reimposition as prices fall.

"In order to stabilize the oil market we need a coordinated approach," Parsley Energy CEO Matt Gallagher said in a statement Friday. "The Texas Railroad Commission limiting state crude output is one part of the solution. Companies reducing production on their own is another."

On Friday, NYMEX April WTI settled down $2.79/b at $22.43/b and ICE May Brent settled down $1.49/b at $26.98/b.

Whether the commission seriously considers any production cut will largely depend on how long prices stay low, analysts said.

"It becomes more likely the lower oil prices go," Bob McNally, president of Rapidan Energy Group, said Friday.

The push for production limits in Texas comes as some US producers are pressing the Trump administration to urge Saudi Arabia to take action to bolster global oil prices which have fallen since the collapse of the OPEC+ supply cut agreement and due to the demand impacts of the spread of the coronavirus.

While US President Donald Trump has said he would get involved in discussion with foreign leaders about oil prices "at the appropriate time," analysts said Trump sees low gasoline prices as beneficial to his re-election chances November's presidential election and remains reluctant to take action that could boost prices.

On Thursday, the Department of Energy unveiled details of its plan to buy up to 30 million barrels of US sweet and sour crude for the Strategic Petroleum Reserve. The department plans to eventually purchase a total of 77 million barrels of US crude to fill the SPR's four storage sites along the US Gulf Coast, but it has yet to receive congressional funding approval for these plans.