Shale producer Continental Resources has reportedly stopped most of its production in North Dakota and told some customers it won’t deliver crude oil after prices plunged into negative territory earlier this week.
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The Oklahoma City-based Continental, which was founded by oil tycoon Harold Hamm and is the largest leaseholder and one of the largest producers in the Bakken shale field, ceased all drilling and shut in most of its wells in the field, Reuters reports, citing three people familiar with the matter.
That follows Bloomberg reporting Continental declared force majeure and said it would be unable to deliver crude oil at a negative price as doing so would be wasteful. Such declarations are usually made after natural disasters and other events that would prevent delivery.
Continental didn't immediately respond to FOX Business’ request for comment. Shares, which had already fallen 61 percent this year through Thursday, rallied following the news.
“As with all of the producers in North Dakota, Wyoming, up to Calgary, Edmonton, there's limited capacity for pipeline capacity, limited truck and rail capacity and limited storage capacity,” Stephen Schork, founder and editor of the daily oil newsletter The Schork Report, told FOX Business.
A declaration of force majeure and cutting production “tells me there is just no place to store oil,” he said, adding that the market’s biggest fears are “coming true.”
The U.S. shale industry has been pummeled this year as the COVID-19 pandemic has resulted in global demand falling by about 30 million barrels per day at the same time a price war between Saudi Arabia and Russia intensified a supply glut.
Swelling supplies and storage capacity nearing its limit was instrumental in West Texas Intermediate crude oil prices plunging into negative territory for the first time this week. Negative prices mean buyers would be paid to take delivery due to the costs associated with transportation.
While oil prices have rebounded sharply into week’s end, with WTI trading near $17 a barrel on Friday, the rebound won’t be able to save many of the producers who need higher prices to turn a profit.
Treasury Secretary Steven Mnuchin said on Thursday he was considering a credit program for oil companies that have been devastated by low prices.
“One of the components we’re looking at is providing a lending facility for the industry,” he told Bloomberg, but said that nothing has been decided.