US pipeline operators are asking producers to cut oil production amid the ongoing COVID-19 pandemic that has led to drastic cuts in global crude output, APA reports citing Bloomberg.
The news agency quoted Plains All American Pipeline LP, one of the country's largest shippers of crude, as saying in a letter earlier this week that the company is “sending this proactive request to our suppliers to ask that you take steps to reduce oil production in response to the pandemic”.
According to Bloomberg, the request is “the clearest sign yet that a growing glut of crude is overwhelming storage capacity”.
This comes as Texas Railroad Commissioner Ryan Sitton tweeted on Saturday that some oil companies are getting letters from US shippers, in which they are calling for production cuts because they are out of storage. Sitton, along with three other officials, was elected to oversee the state agency that regulates the oil and gas industry.
He told the Houston Chronicle that “you are facing a situation where there's so much demand destruction from people staying home because of COVID-19 and there's so much oil flowing right now with no place to go”.
"The supply chain is facing a problem and it backs up all the way to the gas stations”, he added.
Sitton described COVID-19 as a “common enemy” that the international community is grappling with, adding “we've got to do things that we've never done before because we're facing a problem that we've never faced before".
The Houston Chronicle also cited Ed Longanecker, president of the Texas Independent Producers & Royalty Owners Association (TIPRO), as saying that in the letters to oil companies, shippers state that they plan to terminate or change crude purchase contracts against the backdrop of plummeting demand and refinery slowdowns.
"TIPRO requests that President Donald Trump escalate US diplomatic efforts with Saudi Arabia and Russia in response to their deliberate decision to flood world markets with oil, while considering other options to protect domestic energy producers", Longanecker pointed out.