In Russia, one of the world’s top producers, the industry is considering resorting to burning its oil to take it off the market, sources told Reuters.
U.S. billionaire Harold Hamm’s Continental Resources Inc sent servicers out into fields in Oklahoma and North Dakota in the middle of the week to abruptly shut wells, and the company declared it could not make crude deliveries to customers due to poor economics.
Continental’s decision to declare force majeure – usually reserved for wars, accidents or natural disasters – came as a shock, bringing a sharp response from the leading refinery industry group. But some say there is a logic behind it, even if it may not pass muster in court.
“You sign contracts based on the average norms that a society has experienced over the last 100 years. If we have a new event that is not covered by those norms, it goes into force majeure. That’s what Harold Hamm and others are saying – that these are circumstances outside the norm,” said Anas Alhajji, an energy market expert based in Dallas.
Azerbaijan, part of the group of nations known as OPEC+, is forcing a BP-led group to cut output for the first time ever. Oil majors in those countries have generally been excluded from government-imposed cuts.
“We have never done it before since they came to the country in 1994 and signed the contract of the century,” a senior Azeri official told Reuters.
That accommodation can no longer be made with the world running out of space to put oil. As of Thursday, energy researcher Kpler said onshore storage worldwide is now roughly 85% full.
“I’m sure hearing the same numbers about demand destruction of 20 to 30 million barrels a day,” said Gene McGillian, analyst at Tradition Energy, who was working at the New York Mercantile Exchange when U.S. crude futures were launched in 1983. “Until we see some kind of alleviation of that, you have to wonder what is in store.”