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Goldman Sachs sees minimal oil price impact from Texas freeze

  • Low temperatures and power outages should fuel heating demand for LPG by 80,000 bpd and for diesel powered generators by 200,000 bpd, however, it said.
19 Feb 2021

A deep freeze in Texas that has brought power outages and shut refineries and pipelines will have only a small and transitory impact on the global oil market, Goldman Sachs said in a note.

Oil prices slid by up to 2% on Friday, on worries that refineries will take time to resume operations after the big freeze in the US South, creating a gap in demand, while OPEC+ supplies were expected to rise.

Texas's energy outages extended into a sixth day on Thursday, with the impact of reduced supplies from the biggest energy-producing state in the United States spilling over to neighbouring Mexico.

The bank estimates an average decline of 700,000 barrels per day (bpd) in February production of US Lower-48 onshore crude, seeing a quick output rebound on expectations of warmer weather this weekend.

"While the gross impacts on supply and demand are large, they are mostly offsetting, and even more importantly, transitory, resulting in minimal implications for global oil prices, leaving risks to a further reversal of this week's rally," it said in Thursday's note.

Goldman estimates, on the demand side, industrial and shale downtime will reduce refinery gas by 50,000 bpd and diesel consumption by 150,000 bpd, while blocked roads and canceled flights will limit road gasoline demand by 250,000 bpd and jet fuel demand by 60,000 bpd.

Low temperatures and power outages should fuel heating demand for LPG by 80,000 bpd and for diesel powered generators by 200,000 bpd, however, it said.

Since oil refineries are potentially worse prepared for uniquely cold weather than seasonal storms, that could leave risks to the downside to even more prolonged refining downtime, it added.