The Daily Dose

-Cushing is already full.

-The US oil economy may need a panic button.

The primary US commercial storage facility in Cushing, Okla., is full for all intents and purposes. That’s the word Tuesday from Ole Hansen, the head of commodity strategy at Saxo Bank, after the biggest collapse in US crude oil prices since record-keeping began. Contagion went into overdrive as the May contract for West Texas Intermediate was set to expire, pushing the US benchmark for the price of oil deep into negative territory. Producers, meanwhile, continue to pump oil and word on the street is that it will keep coming. The adage is that the solution to low oil prices is low oil prices. On the supply side, that could mean dramatic headcount reductions and bankruptcies. On the demand side, it would require a patient restart to the global economy.

Market players are in panic mode after the May contract for WTI flirted with negative $40 per barrel. Brent crude oil, trading in the June contract, was under serious pressure early in the day, dropping some 17.8% as of 8 a.m. ET to trade at $21.00 per barrel on the button.

A multilateral agreement heralded only a few short days ago as the deal of the century for oil prices has yet to go into force. Ironically that delay is letting the market function in Darwinian fashion. US shale producer Whiting Petroleum has filed for bankruptcy, its counterpart Continental Resources announced voluntary production cuts and some of the biggest oil companies in the world cut spending in the mighty Permian basin in the United States. Oilfield services company Halliburton, meanwhile, stated Monday that it too was trimming capex, adding that its North American segment was underperforming.

“Higher activity for drilling-related services in the North Sea and Asia more than offset reduced activity and pricing for multiple product service lines in North America,” its statement read.

It may be too late for the US oil and gas sector to solve the supply-side problem on its own. Cushing, the storage hub for WTI, has a nameplate capacity of 79 million barrels. Federal data from April 15 show stocks at 55 million barrels and that could easily top the 60 million mark this week. Hansen at the Danish investment firm said the lack of widespread production restraint in the United States and booked storage means “Cushing can now effectively be considered as being full.”

With major segments of the US economy still closed, there are few takers in the domestic market for all of those excess barrels and there’s even fewer places to put it. The Trump administration has mulled buying up barrels for strategic reserves, though that would require congressional support in a divided America. Speaking to reporters on Monday, US President Trump acknowledged that restraint for global producers would be “automatic” as prices continue to plummet. He added that his administration was mulling a de facto blockade on Saudi crude oil imports, though a fleet of tankers is still heading to the United States, according to TankerTrackers. In the Texas oil patch, state energy regulators are set to vote to intervene in the private sector by controlling output. The call to stem the flow in Texas came from relatively small players on life support to the disdain of the likes of Marathon Oil. With the collateral damage from the coronavirus mounting, the appeal for state control may be growing. Hitting the panic button now may be akin to adopting a nationalistic approach to the US oil economy.

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