On April 14, the Railroad Commission of Texas held a marathon virtual meeting to hear from nearly sixty of the state’s energy leaders including executives from some of the most prominent oil producers and midstream companies, industry analysts, consultants and academics. A reported 20,000 people tuned into the public meeting from across the globe to hear the discussion. The topic of the day – whether government-mandated production cuts should be implemented to help curb the free-fall in oil prices.
The COVID-19 pandemic coupled with Saudi Arabia flooding the market with oil in response to its price war with Russia, has resulted in an extraordinary drop in demand that some argue necessitates government intervention. However, the State has not stepped in to regulate oil production since the 1970s, and the argument for such a move in the fiercely independent realm of Texas oil and gas has been met with strong opposition from other industry leaders.
The market currently has a vast oversupply of oil while demand remains low causing prices to plunge to levels not seen in decades. Proponents of state-mandated production cuts argue that it would help bolster oil prices by cutting down on supply. One executive of a prominent producer active in the Permian Basin went so far as to push for a temporary oil production cut of up to one million barrels per day.
On the other hand, those in the industry opposed to such an idea say that the free market should be allowed to run its course. Others argue that production is already being reigned in organically due to the low oil prices, and that further government-imposed production cuts would have no effect on the global oil price. As one industry analyst argued, “The well-known cure for low oil prices is low oil prices.
Even if production cuts were implemented, it is unclear what the process would look like or how it would be enforced, and at the close of the hearing the matter remained unresolved. The commissioners have not yet stated when they will vote on the issue, but as prices continue to fall, instability in the oil and gas industry appears to be here for the foreseeable future.