Pump plugs operate in the Permian Basin of Midland, Texas, USA, on Saturday, February 13, 2021.
Matthew Busch | Bloomberg | Getty Images
Texas’ shocking winter storm, which left millions without electricity and claimed dozens of lives, also froze a major local commodity: Lone Star state oil production, reducing about 4 million barrels a day. from US production.
The consequence will be an increase in revenue and potentially increased exports among rival oil-producing nations, raw material experts say.
Analysts estimate that the total volume of oil lost from freezing production in Texas is between 18 and 40 million barrels and about one-fifth of US refining capacity has been shut down. by the end of this week, the impact of the deficit on oil markets is already visible in the recent jump in crude oil prices.
Brent’s crude international benchmark has risen by more than $ 6 a barrel since the storm began hitting Texan production facilities in mid-February. The US West Texas Intermediate benchmark rose about $ 3 a barrel.
The development, while adding another blow to Texas, in addition to the devastating damage and human suffering caused by the storm that has taken place over a decade, translates into a global market advantage for other oil producers, such as those in the Middle East.
“The Texas storm is helping Saudi and its partners tremendously, as it is accelerating the path to normalizing stocks,” said Peter Sutherland, president of Houston’s energy investment firm Henrietta Resources LLC.
“The concomitant reductions in both crude and refined products represent a strong tailwind heading for spring,” he told CNBC. “It’s not just a positive sentiment; about 40 million barrels lost due to the storm are helping to tighten the market.”
OPEC expects production to increase
Stockpiling continues a trend that shows that oil prices are steadily rising from their pandemic-induced historical lows almost a year ago. Gross Brent has risen 30 percent so far, with Goldman Sachs predicting it could reach $ 75 by the end of this year, a level not seen since the fall of 2018.
This could influence OPEC members’ decision-making at their next meeting on 4 March. While the organization has prioritized large-scale pandemic production cuts to keep oil prices low, the more promising outlook for demand – and the gradual normalization of global supply – provides an incentive for these producers to accelerate their rate. increase production.
“I would certainly expect Saudi Arabia to increase production, given the current prices the market has seen,” said Yousef Alshammari, CEO of oil markets consulting firm CMarkets.
“The supply disruption in Texas could lead OPEC + and Saudi Arabia to increase production to some extent, and much of that increase in output will go to higher-priced exports.” OPEC + is the free alliance of 13 OPEC states and 10 non-OPEC oil-producing countries.
The voluntary reduction in Saudi Arabia’s 1 million barrels per day production ends in March and is already expected to gradually return to supply in April. But it also means that the kingdom cannot take advantage of higher crude oil prices, accelerating exports until the end of the downturn.
However, “every oil producer, including Saudi Arabia, enjoys the advantage” of the price increase, said Tamas Varga, a senior analyst at PVM Oil Associates. “US crude oil exports will decline in the coming weeks and this provides support for the international classes – again support for oil producers.”
“Very small globally”
Some analysts do not see the loss of Texas production as a consequence, even in the medium term.
The impact of a daily loss of 4 million barrels “is very small globally, as the world produces over 80 million barrels per day of oil,” Rene Santos, North America’s supply manager for S&P Global Platts, told CNBC. Analytics.
“Freezing happens in the US every year, but the magnitude we’ve experienced in recent days doesn’t happen very often,” he said. “In addition, the freeze is short-lived.”
Varga from PVM agrees. “The situation will return to normal soon, and in the medium term, the impact of the Texas frost will be negligible, I think,” he said.
But the long-term market dynamics are still in favor of OPEC members – not because of the Texas storm, but because of last year’s devastating closures in US oil production when oil prices plummeted. The high cost of shale production in the USA meant that most producers could not survive the impact of the blockages. The number of platforms in the US is still 50% below 2019 levels, despite rising prices.
“US oil production is not expected to return to 2019 levels, leaving OPEC + with a much greater influence on markets in 2021,” Alshammari said.
In the long run, the impact of a weather shock like this month “really depends on how Texas will cope with these crises in the future,” he added. “I expect them to be more resilient to such adverse weather conditions from upstream supply, however I certainly expect Saudi Arabia to have a higher long-term market share due to the lost market share of shale production.”