How does government have the power to curb U.S. oil output?
Texas regulators decided on Tuesday against reducing the state’s oil output, a power available to U.S. state and federal authorities that has been put in the spotlight by spreading job losses during a sharp decline in energy prices.
Crude oil prices are around $24 per barrel, down from $61 at the start of the year as more than 3 billion people worldwide went into a lockdown, slashing global demand by as much as a third. The drop has led to tens of thousands of job losses across the shale patch.
Small oil companies in Texas, North Dakota and Oklahoma have asked state and federal authorities for help to stop the pain by allocating cuts and other measures. Texas rejected one request and the federal government has opened space in federal storage caverns to reduce strains from too much unsold oil flooding the market.
HOW CAN STATES MANDATE OUTPUT CURBS?
Texas, New Mexico, North Dakota and Oklahoma regulators have the power to limit some production under laws seeking to prevent the waste of state resources. Texas’ Railroad Commission used output curbs to lift oil prices after the discovery of a giant East Texas field in the 1930s crashed oil prices to 10 cents per barrel from $1.10.
WHAT ABOUT ANTITRUST LAWS?
Antitrust laws were designed to prevent companies, not the federal government from restricting prices. The U.S. president, “other federal officials and Congress cannot violate antitrust (law) by any official actions they take. It doesn’t apply to them,” said Chris Sagers, who teaches antitrust at the Cleveland-Marshall College of Law.
WHY DID IT FAIL IN TEXAS?
Two of three Texas energy commissioners voted to dismiss a proposed 20% output curb submitted by two oil producers. The state is the largest oil producer in the nation, accounting for about 5 million barrels per day, more than 40% of the total. “Texas companies, rather than the government, can decide for themselves what level of production cuts make sense for them,” said Wayne Christian, the commission chairman.
WHEN WAS THE LAST TIME TEXAS LIMITED PRODUCTION?
Texas last limited output in the early 1970s, a time when the state’s oil production started falling into a decades-long decline that eliminated the reason for output caps as it lost market share to other countries. Texas oil output did not climb again until 2008 with the shale drilling boom.
WHAT ARE THE CHALLENGES?
U.S. officials and business groups have railed for decades against the Organization of the Petroleum Exporting Countries (OPEC) over its control of members’ oil production. To now reverse course and embrace state or federal action would be a difficult pill to swallow.
“From an antitrust perspective, businesses have been complaining about OPEC and complaining about these foreign systems for years,” said Barbara Sicalides, an antitrust expert at law firm Pepper Hamilton LLP.
Source: Reuters (Reporting by Jennifer Hiller in Houston and Diane Bartz in Washington; Editing by Lisa Shumaker and Peter Cooney)