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Oil Tumbles 10% Amid Texas Infighting Over Cuts, Expected Weekly Builds

Published 04/14/2020, 02:08 PM
Updated 04/14/2020, 03:36 PM
© Reuters.

© Reuters.

By Barani Krishnan 

Investing.com - Crude prices tumbled 10% Tuesday as OPEC’s plan for deep global cuts in output ran into resistance in Texas where some drillers in the largest U.S. oil producing state balked at making more reductions than they deemed necessary. 

Expectations that the government will report on Wednesday large and all-round builds in crude, gasoline and distillates stockpiles for last week also weighed on prices.

West Texas Intermediate, the New York-traded benchmark for U.S. crude, settled down $2.30, or 10.3%, at $20.11 per barrel. WTI broke below the $20 support level earlier, falling to $19.96.

Brent, the London-traded global benchmark for crude, tumbled $2.14, or 6.7%, to settle at $29.60.

“The Texas story by itself doesn’t change the OPEC status quo on cuts, but it’s giving ideas on how the picture could change if similar narratives start popping up across the U.S.,” said John Kilduff, founding partner at New York energy hedge fund Again Capital.

OPEC and other oil producing countries agreed at the weekend to cut nearly 10 million barrels per day of supply to mitigate some 30 million bpd in demand that analysts estimate has been lost to the Covid-19 pandemic.

While the United States is participating in that plan, officials say the U.S. cuts will be voluntary and market-determined. That ran into a snag in Houston where Texas energy regulators responding to a call from a couple of drillers for a mandate on output cuts faced resistance from others who said such moves will bring them more hardship.

Pioneer Natural Resources (NYSE:PXD) Chief Executive Scott Sheffield, who has asked regulator Texas Railroad Commission (TRC) to enforce deeper cuts, warned of $3 to $10 per barrel prices in the next several weeks, unless the commission acted decisively.

“This is probably going to be worse than ‘86,” Sheffield said. “Demand is not going to come roaring back.”

But some companies argued that they were already cutting spending by as much as 50%.

“I would argue that among global producers, the U.S. has acted first and has acted quite strongly,” said Lee Tillman, CEO of Marathon Oil (NYSE:MRO). “The bottom line is we’re already cutting and cutting deeply.”

The TRC is to make a decision later in the day. At least two of the three-member panel at the commission have to vote in favor of deeper cuts, and only one is now on the side of those that want stronger action.

On weekly stockpiles data, the Energy Information Administration is expected to report that U.S. crude stockpiles rose by 11.6 million barrels last week, after having risen 30.6 million barrels over the past three weeks.

Gasoline stockpiles are expected to have gained by 6.8 million barrels last week, after a net build of 16.5 million barrels over three weeks. 

Distillates inventories are forecast to have risen by 1.2 million barrels last week, against a net drop of 2.4 million barrels over the past three weeks. 

Latest comments

If you are fighting over cuts things have not got bad enough. if you were around oil in the early 80s you would be working 24 7 to cut production and there would be no hesitation. its coming.
Agreed. Soon very soon they have no choice.
Hate to see it as if OPEC let's price drop to much we will go from recession to depression due to the thousands in oil industry that will lose jobs. Starting to feel like the 80 s and I don't work oil any longer. Don't understand why OPEC didn't come out and state how much they will end up having to cut due to lack of storage and demand? Unless their ultimate objective was to destroy the US independent oil man. They are getting it done. Uncle Sugar cannot afford the complete bail out of oil. I think the Saudis are upset over the lack of WS support for Aramco. OPEC will start cutting production more than anyone will know.
What about oil producers from other states, are they experiencing similar hardship as these Texas producers?
ask trump.
Oklahoma running their meeting May 11
all news are positive oil will reach to 30 by end of this month new contract is already trading at 27
If u try following the news you will loose. If you do the opposite and have ***to do it, you will most likely win until the news agrees yith you. have a calm night.
Wait till tide recedes and see who is naked ?
the market is leaving you behind.
i think it's great if shale producers go bust. such an unethical industry. it's not a problem trump can just ask Jerome to print a few more trillions and bail them out too. everyone should get bailed out
Its a big problem if the producers go bankrupt! Trump has promised all banks to continue pumping WTI and get paid bye FED printed money. This bill will be forwarded to every US taxpayer's after the election. Have a nice voting time.
Agreed
Good time to get into those leveraged WTI Long ETFs ? What you folks thing ?
Go long Brent and short WTI. Have a calm night.
Is 20$ a hard bottom for WTI ?
not at all! await until $10
Oil was already on the way out before the virus.
WEst Texas should stop being selfish ,it s time to do the right things.
Never underestimate how selfish people are, so the dogfight continues until they all are tired and lost.
There's a time delay between cut production and cut CAPEX.  Which one are we discussing ?
good question. do u have other good questions?
The Texas producers need to quickly factor in the surge in Electric Vehicle production and sales that are now a certainty in America.  Along with that is the advancement in EV technology that will increase the travel distance and batter charging systems which will further mitigate our dependency on oil and gas.  Wake up Texas and rethink your strategy.  You are the best state in the country and I hope to see you stay that way.
Hydro electric power was proven in the 1930’s with the TVA. It’s entirely possible to use way less oil.
vote trump he will create evs
only the Kingdom of Norway is self sufficient with hydro electricity. Icelanders may do it from natural thermal energy. US is...
So, as they saying then, once the world passes this covid and we return to normal, the u.s will pump all out, so the saudis and the russians will fight again for market share and prices will stay depressed.
cuts are voluntary :-) these cuts wont be adhered to... never are. not sure why markets react to this news???
Out with the Oil and in with the Re-new. Let Texas and the Mid East fight over the bone.
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