A little known Texas state regulator waded into oil diplomacy on April 2, calling Russia's energy minister to discuss possible oil production curbs and angling for talks with Saudi Arabia as many producers in the U.S. state's biggest industry warned it was near collapse.
But at least one analyst scoffed at the regulator's attempt to broker a deal with Russia and the Saudis, noting that state officials could reduce output in the state if they really wanted to, merely by enforcing existing regulations on producers.
U.S. energy companies are losing money on oil production, cutting tens of thousands of workers, and some are struggling to obtain financing. Texas shale producers have been hurt the most as oil prices have crashed two-thirds this year. Last month alone prices fell by half, to near $20 a barrel, as the coronavirus slashed fuel demand.
On a day that U.S. President Donald Trump said he had brokered a deal between Russia and the Saudis to cut output by 10 million to 15 million bbl/d, Texas regulator Ryan Sitton said he pursued an in-person meeting between Russian, Saudi and U.S. officials.
Sitton, one of three members of the Texas Railroad Commission, said he had a "really substantial, really exciting call" with Russian Energy Minister Alexander Novak. He also texted Saudi Arabian energy minister, Prince Abdulaziz bin Salman Al-Saud, seeking to discuss the market collapse.
The other two members of the commission have not weighed in on Sitton's attempt to broker a deal. All three are Republicans.
It is rare for Texas officials to seek production cuts. But this week, top shale oil producers, Pioneer Natural Resources Co. and Parsley Energy Inc. urged the state to mandate 20% production cuts at larger oil and gas firms. Pioneer's CEO also called for regulators to consider blocking higher foreign oil imports.
"This isn't good for anybody," Sitton told Reuters. "We're talking about a destabilization of the global energy market."
Over the last few years, he and other Texas regulators had championed the state's soaring oil and gas output as Russia and OPEC cut production to bolster global prices. State law allows Texas to take steps to limit local production, but it has not done so since the 1970s.
Oklahoma Action Sought
The Oklahoma Energy Producers Alliance this week urged the state's energy regulator to take steps to curtail crude oil production as oil prices in the state fell below $20 a barrel.
The Alliance also asked regulators to "stop authorizing, permitting and approving the drilling of wells which result in 'economic waste,'" according to a letter sent to the three commissioners for of the Oklahoma Corporation Commission.
John Kilduff, a partner at Again Capital in New York, said that regulators could avoid the political hazard of ordering production cuts by enforcing natural-gas flaring rules already on the books, which the state has not done.
"If the Texas Railroad Commission were to pull some of these natural gas flaring permits," said Kilduff, "that would force the oil wells to be shut in. That's the leverage that the Texas Railroad Commission has to curtail production."
Texas regulators will meet on April 14 to discuss curtailments in the state, and may vote on any resolution a week later, Sitton said. Sitton is a lame duck on the board, having lost in the March primary to a challenger. His tenure expires in December.
The state’s two other regulators have not publicly endorsed cuts. Commissioner Wayne Christian said he is willing to discuss the topic and Commissioner Christi Craddick has declined to comment.
Front-month gas futures rose 7.3 cents, or 3.4%, to settle at $2.238 per million British thermal units, their highest close since Dec. 26.
Saudi Arabia's state oil producer Aramco has cut the official selling prices for its crude to Asia and Europe, while leaving them unchanged for the U.S., a document obtained by Reuters showed.
Gas stockpiles in the US and Europe are expected to reach all-time highs by the end of the injection season.