NEW YORK: Oil prices gained about 3% on Monday, driven by the expected slow return of US crude output after last week’s deep freeze in Texas shut in production.
US producers shut anywhere from 2 million to 4 million barrels per day of oil output due to the bad weather in Texas and other oil producing states, and the unusually cold conditions may have damaged installations that could keep output offline longer than expected.
Brent crude was up $2.04, or 3.2%, at $64.95 a barrel by 1:50 p.m. EST (1850), while US oil rose $2.01, or 3.4%, to $61.25 a barrel. The US benchmark crude contract for March delivery expires on Monday, and the more widely-traded April contract was up $1.91, or 3.2%, at 61.19 a barrel.
Shale oil producers in the region could take at least two weeks to fully restart normal output, sources said, as damage assessments and power disruptions slow their recovery.
“The significant loss of both crude and gasoline production suggests more upside and likelihood of new highs possibly within a one-week time frame,” said Jim Ritterbusch of consultancy Ritterbusch and Associates.
But with limited refining capacity, and the expectation that refiners, too, could take weeks to return to normal, oil prices may stumble from a lack of demand, said Bob Yawger, director of energy futures at Mizuho in New York. “The market is behaving as if the refiners are going to come online quicker than the headlines would lead you to believe,” said Yawger. Gasoline crackspreads, an indicator of refiners’ margins have dropped by 5%.
For the first time since November, US drilling companies cut the number of oil rigs operating due to the cold and snow enveloping Texas, New Mexico and other energy-producing centres, signalling even tighter supplies ahead. OPEC+ oil producers are set to meet on March 4, with sources saying the group is likely to ease curbs on supply after April given a recovery in prices, although any increase in output will likely be modest given lingering uncertainty over the pandemic.
“Saudi Arabia is eager to pursue yet higher prices in order to cover its social break-even expenses at around $80 a barrel while Russia is strongly focused on unwinding current cuts and getting back to normal production,” said SEB chief commodity analyst Bjarne Schieldrop.
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