Oil hits 13-month high as Texas freeze disrupts output

Oil prices reached a 13-month high of above $65 per barrel on Thursday before scaling back to just around Wednesday’s close as production cuts in the US due to a rare cold snap in Texas disrupted output.

Concerns that the freeze could disrupt crude output for days or even weeks prompted fresh buying. According to traders, more than four million barrels a day — almost 40 per cent of the US production — is now offline.

Brent crude was down three cents at $64.31 a barrel at 1046 GMT, after rising to $65.52 earlier in the session, its highest since January 20, 2020. US West Texas Intermediate crude futures eased 4 cents to $61.10 a barrel, after earlier rising to $62.26, the highest since Jan. 8, 2020.

Artem Abramov, Rystad Energy’s head of Shale Research, said the production outages are ongoing and reached a peak of just above 3.0 million bpd, with the daily impact averaging at around 2.0 million bpd during the cold spell, which is not yet over.

“Remember how the market reacted when Saudi Arabia offered voluntary cuts of 1 million bpd? Well double that number and see what happens. It’s exactly the same market reaction now with the US, although the cuts are not voluntary,” said Abramov.

“The very fact that the duration of this cold weather is uncertain, with some projections noting it could be weeks, is sending prices to fluctuate widely, and to score new highs,” he said.

Abramov said when the current wave of cold weather is over and production restarts prices will normally trim the weather-caused gains and return to more ‘normal’ levels.

Analysts said unlike in the past when the weather-related disruption would largely have been a US issue, it is now unmistakably global. Crude markets in Europe are rallying as traders replace lost US exports. Opec and its allies must decide how much longer they keep millions of barrels of their supply off the market.

Citigroup Inc. said it expects a production loss of 16 million barrels through early March, but some trader estimates are now almost double that. Vast swaths of production in the Permian — the heartland of US shale output — have been shut in.

Texas’ freeze entered a sixth day on Thursday, as the largest energy-producing state in the US grappled with massive refining outages and oil and gas shut-ins that rippled beyond its borders into neighbouring Mexico.

“The temporary outage will help to accelerate U.S. oil inventories down towards the five-year average quicker than expected,” SEB chief commodities analyst Bjarne Schieldrop said.

Prices also gained support from a larger-than-anticipated draw in the US crude oil inventories, which fell by 5.8 million barrels in the week to February 12 to about 468 million barrels, compared with analysts’ expectations for a draw of 2.4 million barrels, American Petroleum Institute data showed.

Oil’s rally in recent months has also been supported by a tightening of global supplies, due largely to production cuts from the Opec and allied producers in the Opec+ grouping that includes Russia. — issacjohn@khaleejtimes.com