U.S. Freeze Cuts Oil Output by Over 2 Million Barrels a Day
(Bloomberg) -- U.S. oil production has plunged by more than 2 million barrels a day as the coldest weather in 30 years brings havoc to key producing states that rarely have to deal with frigid Arctic blasts.
Oil traders and company executives, who asked not to be identified, lifted their forecasts for supply losses from an earlier estimate on Monday of 1.5 million to 1.7 million barrels. They said the losses were particularly large in the Permian Basin, the most prolific U.S. oil region, which straddles West Texas and southeast New Mexico. Output cuts were also significant in the Eagle Ford, in southern Texas, and the Anadarko basin in Oklahoma.
Two million barrels would be the equivalent of about 18% of overall U.S. crude production, based on the most recent government data.
The overall magnitude of the outage will depend of the number of days production is down sharply. Traders expect to see output crawl back slowly by Wednesday as temperatures in the Permian rise. Midland, the capital of the oil basin, saw the thermometer plunge to -2 Fahrenheit (-19 Celsius) on Monday, the lowest since 1989, according to the U.S. National Weather Service. Temperatures early Tuesday were at 12 Fahrenheit.
The Permian oil outage helped to push West Texas Intermediate, the crude benchmark in the U.S., above $60 a barrel on Monday for the first time in more than a year. Since then, oil prices have fallen slightly because U.S. refineries have also closed due to the cold, reducing the amount of crude needed right now. Energy Aspects Ltd., a consultant, estimated that 3.1 million barrels a day of refining capacity was down as of Monday.
The current crude oil output losses are due to a combination of well shutdowns, flow-line outages, and disrupted road transport, all due to the extreme cold weather. Small producers in the Permian and elsewhere pick up crude every few days using trucks, but bad weather is making it hard for vehicles to get out, forcing companies to close wells.
While oil production continues in many regions despite the cold, including the Bakken basin in North Dakota, the kit used in the Permian isn’t built to withstand extremely low temperatures, executives said. For example, flow lines, which link individual wells to gathering centers, are laid overground, rather than buried, as they are in colder regions.
The low temperatures have already caused equipment failures at multiple natural gas processing plants in the Permian and in the Anadarko basin in Oklahoma, sending regional natural gas prices to record highs.
©2021 Bloomberg L.P.