(Bloomberg) -- Oil rose to the highest in over a year as U.S. oil output plunged by a record 40% amid the ongoing energy crisis in the country.
Futures climbed 1.8% in New York after flipping between gains and losses earlier on Wednesday. The deep freeze causing historic power outages across the central U.S. has led oil output to fall by more than 4 million barrels a day nationwide. Meanwhile, Brent’s nearest contract is trading at its strongest premium to the following month in over a year, with North Sea traders this week frantically bidding for the region’s cargoes as replacements are sought for U.S. crude exports.
However, a spate of refinery outages from the freezing temperatures has curbed demand for crude in the U.S., while gasoline consumption also decreased as the cold kept even more Americans off the road. WTI’s nearest time spread flipped back into a bearish contango structure this week amid refinery closures and infrastructure issues associated with the freeze in the U.S., indicating oversupply.
“This arctic blast is really delivering a key surprise that’s elevating prices,” said Edward Moya, senior market analyst at Oanda Corp. “The short-term disruption underlines the fragility of where we are with supplies, and we could see a number of different events that could provide us with another surge higher.”
Crude’s rally faded briefly during Wednesday’s session after Dow Jones reported that Saudi Arabia plans to boost oil output in the coming months, citing unnamed advisers to the kingdom. While Saudi Arabia’s unilateral supply cuts this year came as a surprise to the market when initially announced, many investors had expected the producer to raise output come April. Meanwhile, Saudi Arabia is urging fellow members of the OPEC+ alliance to remain cautious as they prepare to consider further supply increases.
“We’re at a very delicate point here,” said Bob Yawger, head of the futures division at Mizuho Securities. OPEC+ has “to make sure the associated demand is there before increasing the barrels and not kill the golden goose here, which is what they’ll do if they add everything at once.”
Prices
- West Texas Intermediate for March delivery rose $1.09 to settle at $61.14 a barrel
- Brent for April settlement gained 99 cents to end the session at $64.34 a barrel
- Both benchmarks are at the highest since January 2020
Temperatures in Texas are now low enough to freeze oil and gas liquids at the well head and in pipelines laid on the ground. Before the crisis, the U.S. was pumping about 11 million barrels a day, according to government data. Production in the Permian Basin alone -- America’s biggest oil field -- has plummeted by as much as 80%.
A slew of crude pipelines were also shut earlier this week due to the freeze, including those that transport oil from the nation’s largest storage hub at Cushing, Oklahoma, to the U.S. Gulf Coast, according to data-provider Genscape Inc. Multiple pipelines remained offline as of Tuesday.
U.S. crude stockpiles are expected to have fallen last week ahead of production shut-ins due to the freezing weather, according to a Bloomberg survey. The industry-funded American Petroleum Institute will report storage figures later Wednesday ahead of U.S. government data.
For more on the cold snap:
- Texas’ Power Crisis Isn’t Getting Better. It’s Getting Worse
- Natural Gas Soars to $1,250 in Central U.S. on Supply Paralysis
- In Texas’s Black-Swan Blackout, Everything Went Wrong at Once
- Energy Crisis in Texas Similar to Hurricane Katrina, Sankey Says
- Propane Markets Getting Hotter as Deep Freeze Takes Hold: BNEF
- Gas Shortages Are Causing Rolling Blackouts in Mexico: AMLO
- Biden’s Plea to Remake Grid Gets a Boost on Texas Power Crisis
--With assistance from Sheela Tobben.
© 2021 Bloomberg L.P.
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