US benchmark, West Texas Intermediate, has fallen to the $10 range as global economies remain on lockdown due to the Covid-19 pandemic, crushing crude demand. To add insult to injury, global oil storage is reaching its limits.
The situation is so dire, in fact, that the Department of Energy is even considering paying domestic oil producers to keep crude in the ground.
Just this Wednesday, the International Energy Agency reported a record 19 million barrel increase in domestic crude oil supplies.
Not even OPEC has been able to provide any relief for the ailing industry. While the cartel and its global partners were able to agree upon a 9.7 million barrel per day cut, the market clearly thinks it’s not enough.
Vandana Hari, founder of Vanda Insights, a firm specializing in oil market analysis, noted,
“The current prices show that the OPEC+ cuts proved to be a blip, with oil prices at the mercy of the virus once again,” adding that “Until we approach a lifting of the lockdowns in the US, oil may drift lower or remain rangebound around current levels.”
The oil price collapse is sending shockwaves throughout the entire industry, with oil majors slashing spending across the board, and explorers cutting as much as 13 percent of their drilling fleet as the crisis rages on.
The troubling times have even forced the Texas Railroad Commission to consider the unthinkable, mandate a state-wide production cut. While the three commissioners were unable to come to a decision last Tuesday, the group is set to meet again on April 21st. And with oil prices having fallen an addition 20 percent since their last meeting, they might just be ready to take action.
Even if the RRC follows through with their plan to interfere with the free markets, however, many experts suggest that as much as 20-30 million barrels per day in demand is being decimated by Covid-19 – a far cry from what global oil producers have cut so far.