Oil Advances With U.S. Polar Blast Slamming Oil Production
A worker collects a sample of crude oil for quality control purposes at a testing facility. (Photographer: Oliver Bunic/Bloomberg)

Oil Advances With U.S. Polar Blast Slamming Oil Production

Oil rose to the highest in over a year as U.S. oil output plunged by a record 40% amid the country’s ongoing energy crisis, adding to an already tightening supply picture.

Futures in New York extended gains following settlement after the American Petroleum Institute was said to report a 5.8 million-barrel decline in domestic crude supplies last week. 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.”

Oil Advances With U.S. Polar Blast Slamming Oil Production

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.”

  • West Texas Intermediate for March delivery were trading at $61.62 a barrel as of 4:45 p.m. in New York after settling 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.

Meanwhile, the API report also showed gasoline supplies rose by nearly 4 million barrels last week ahead of refinery shutdowns due to the cold weather. Meanwhile, the data also showed declines in distillate inventories and stockpiles at the nation’s largest storage hub in Cushing, Oklahoma. The U.S. government will reports its storage figures on Thursday.

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