The company declared force majeure after producers selling oil to them shut production, causing Eighty-Eight to be
NEW YORK: US crude marketing company Eighty-Eight Oil LLC has declared force majeure after oil producers across the Rockies and North Dakota shut production as the coronavirus eroded demand and sent prices plunging, four sources familiar with the matter said.
The company declared force majeure after producers selling oil to them shut production, causing Eighty-Eight to be short on barrels that they had committed to sell, two sources said.
US producers have shut wells and idled rigs as prices have dropped 45% this year, making production unprofitable. In North Dakota, the second-largest producer after Texas, output is down by more than 500,000 barrels per day, state officials said. Last year, North Dakota produced 1.4 million bpd.
Eighty-Eight Oil LLC markets crude from the Rocky Mountain region and trades crude in Clearbrook, Minnesota, a major hub for Bakken crude, traders said. The company is a unit of True Companies of Casper, Wyoming. A spokesman said the company doesn't release information about contracts with its customers.
Eight-Eight Oil's force majeure has disrupted supplies at Clearbrook, two market sources said. Bakken prices at Clearbrook for July delivery have risen to trade at parity with US crude futures due to the shut-ins.
The claim has forced counterparties to source alternate barrels from the market, the sources said. Companies declare force majeure when they cannot fulfill a contract due to unforeseeable circumstances, such as war or natural disasters. Claims based on poor business conditions are likely to meet legal challenges, analysts said.
"The lawyers, bless their hearts, they've got to come up with some kind of an argument for their client and an economic force majeure is about the last one they can come up with," said Ted Borrego, who has practiced oil and gas law for over 45 years and teaches at the University of Houston Law Center.
Last month, shale producer Continental Resources drew angry responses from the industry after it said it could not supply crude to some customers, citing economic hardship.