US Oklahoma "Lease Contracts Maintained Even if Well Closures Occur"... De Facto Production Cut Approval

US Also Begins Artificial Production Cuts... Texas May Join
Offshore Oil Wells Also Closing
WTI Daily Fluctuations Around ±10% Since March

[Asia Economy New York=Correspondent Baek Jong-min, Reporter Naju-seok] The state of Oklahoma in the United States has officially allowed crude oil production cuts. Although mining companies have reduced production on their own in the past, this is the first time that U.S. authorities have intervened to decide on an 'artificial production cut.'

As the movement to cut production within the U.S. gained momentum amid concerns of oversupply, oil prices rose. However, the market expects that the decline in crude oil demand is even steeper, forecasting continued volatility.

On the 23rd (local time), the Oklahoma Corporation Commission (OCC), responsible for energy policy in Oklahoma, announced that even if economically unviable wells are shut down, the well lease contracts will be maintained. The OCC held a meeting that day and concluded that Oklahoma oil producers could close wells that have become uneconomical due to low oil prices. They stated that this decision is valid for 90 days but may be extended.

With Oklahoma, the fourth largest crude oil producer in the U.S., deciding to cut production, the possibility has increased that Texas, the largest crude oil producer in the U.S., will also join the production cut decision. This is because produced crude oil is accumulating without undergoing refining, and storage facilities are nearly full.

The Wall Street Journal (WSJ) reported that offshore oil fields in the U.S. Gulf of Mexico are also moving toward well closures. According to the report, oil producers such as Schlumberger, Halliburton, and Baker Hughes are taking steps to reduce costs, including laying off employees.

As a result of these movements, oil prices rose. On the New York Mercantile Exchange (NYMEX), West Texas Intermediate (WTI) crude oil for June delivery closed at $16.50 per barrel, up 19.7% ($2.72).

However, concerns remain high in the market. According to data released by the U.S. Energy Information Administration (EIA) that day, the refining volumes of gasoline, heating oil, and jet fuel in the U.S. sharply declined within just one month. Gasoline refining averaged 8.9 million barrels in March but dropped to 5.3 million barrels last week. Jet fuel decreased by 60%, and heating oil by 20% respectively.

The market is worried that oil price volatility will continue to increase. According to WSJ, since March, the average volatility of WTI has reached 10%. Considering that the average volatility last year was only 1.5%, a highly volatile market is unfolding.

The economic situation in the U.S. is worsening due to the impact of the novel coronavirus disease (COVID-19), making it difficult to expect a demand recovery. In particular, the service sector has been hit harder than manufacturing. According to IHS Markit, the U.S. Manufacturing Purchasing Managers' Index (PMI) for this month was 36.9, down from 48.5 the previous month. Although it was the lowest in 133 months, it was higher than the market expectation of 35.0. The service sector PMI plummeted from 39.8 last month to 27.0. The service sector PMI also fell short of the market expectation of 32.0. A PMI above 50 indicates economic expansion, while below 50 indicates contraction.

The U.S. Department of Labor announced that initial jobless claims last week decreased by 810,000 from the previous week to 4.42 million. Although about 26.5 million people have lost their jobs over the past five weeks until last week, the weekly new unemployment claims have dropped to the 4 million range, creating a perception that the worst phase of the unemployment crisis has passed.

This content was produced with the assistance of AI translation services.