U.S. crude oil production has plunged by as much as 40 percent due to the Polar Vortex that brought freezing temperatures to swathes of the United States, most notably including Texas, where wellheads and pipelines froze. Now, this is turning into a global problem.
Bloomberg’s Alex Longley writes that according to estimates by Citi, the total lost U.S. production by early March could reach 16 million barrels. According to traders, however, the lost production could be twice as high.
“The market is underestimating the amount of oil production lost in Texas due to the bad weather,” Ben Luckock, co-chief of oil trading at Trafigura, said as quoted by Bloomberg.
And it’s not just lost oil production, either. Power outages led to the shutdown of several refineries in Texas, which removed an estimated 3 million bpd or more in refining capacity.
“The Gulf Coast is a gasoline machine and sends products across the U.S. as well as international markets,” said Kitt Haines, Energy Aspects analyst. “For a brief period at least, this could help European refining.”
European refiners will be just one of the groups that will benefit from the Texas deep freeze. Another is OPEC+. The extended cartel is meeting in early March to discuss progress with its production cuts, and the Texas events could strengthen the hand of producers that want to start boosting production sooner rather than later.
Saudi Arabia already signaled that prices are at a more comfortable level for it: the Kingdom said it will end its voluntary 1-million-bpd production cuts from March.
By March, the weather in Texas should be back to normal. In fact, according to forecasts, it should be back to normal by the end of this week. However, it will take more than a few days to bring production and refining back to normal.
“Evidence from the last great Permian freeze off is that it can come back very quickly,” Paul Horsnell, head of commodities research at Standard Chartered, told Bloomberg. “But refineries are more likely to be prone to prolonged damage.”
By Irina Slav for Oilprice.com
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