Texas oil regulator throws in the towel on supply cut
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Oil price signals suggest global demand is returning and supply cuts are coming, but analysts say prolonged recovery requires the pandemic to be under control — and a COVID-19 vaccine.
This morning the key member of the Texas commission that regulates oil — who favors supply cuts mandated by the state — threw in the towel. Texas Railroad Commissioner Ryan Sitton told Bloomberg television that the proposal to require all producers to cut production was “dead” and might not even receive a vote at Tuesday morning’s meeting.
To industry analysts, it was clear given public statements of commissioners that Sitton was the only panel member supporting “proration” cuts, so he didn’t have the votes.
In any event, low crude oil prices have already achieved what regulators had sought: to cut state production.
“The market is already there or moving in that direction,” said Mark Finley, energy fellow at Rice University and former economist for BP. “The market wasn’t waiting for the railroad commission to make a decision.”
Now, Finley said, the market has moved on toward price recovery. Driving and flying are restarting in parts of the world, and crude oil prices are creeping up following a collapse in travel and oil demand in April.
“We may have seen the worst of the demand destruction,” Finley said, “as the economy begins to get back into motion here in the U.S. and around the world. And as of last Friday, the biggest coordinated production cuts in the history of the world oil market have taken effect.”
OPEC and non-OPEC producer nations began on May 1 to cut global oil supply dramatically, suggesting the world’s massive oversupply may be shrinking.
Maybe. The virus could surge again in the fall, so the key will be whether stay-at-home rules are lifted — and stay lifted.
“The recovery in demand will be driven by the easing of those containment measures,” said Ann-Louise Hittle, oil research analyst at the energy research and consulting firm Wood Mackenzie.
The other “if” is whether a COVID-19 vaccine will be widely available next year, giving travelers some assurance to move about the planet.
“Our forecast is based on the assumption that there will be vaccine in the market the second quarter of next year,” Hittle said. “We just made that assumption. That kind of a recovery won’t happen if we don’t see a vaccine developed by then.”
Like so many sectors, the energy business recovery depends strongly on the future of the coronavirus curve. As one analyst told “Marketplace,” the leading economic indicator is the virus.
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