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Osama Rizvi

Osama Rizvi

Osama Rizvi is an Economic and Energy Analyst with a special focus on commodities, macroeconomy, geopolitics, and climate change. He has written for various print…

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A Key Fracking Indicator Just Hit Record Lows

Oil prices have staged an extraordinary rally in the last three months, rising by 50%. Biden’s presidency, the vaccine rollout, a weak dollar, low interest rates, no inflation, and hopes of more stimulus in the future have all played a part in sending oil prices higher. Now, the recent Polar Vortex in Texas has taken prices to a new 13 month high, with WTI rising 3 percent on Monday the 22nd February. The storm in Texas, which killed at least 25 people, pushed an estimated 4 mbpd of U.S. oil production offline, output that will take an estimated two weeks to return.

Primary Vision Network’s Frac Spread Count, which calculates the number of active spreads across the U.S./Alberta market, fell to a record low from 161 to 41, a weekly reduction of 120. Evidently, the cause of this steep fall was Texas’ Polar Vortex that caused a severe power shortage and other issues. As fracking requires a large amount of water, producers were forced to shut some of their equipment down. According to PVN, the Frac Spread will eventually return to 160, but the complicated process of restarting this equipment will mean that the rebound may take a while.  

The Frac Spread Count will return back to where it was over the course of two to three weeks according to Mark Rossano of C6 Capital Holdings. Due to the storm in Texas, almost 5 million barrels per day of refinery throughput has been lost, which will take more than 4 weeks to recover, as damage to pipes, valves and other apparatus will have to be repaired.

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U.S. drillers will, given the lack of demand from refineries, be faced with two choices: store the excess oil or export it. The latter would involve reducing the price slightly to incentivize buyers, forcing spreads to open up.

In another important development, Saudi Arabia is expected to increase production in the coming months according to the Wall Street Journal. Goldman Sachs recently said that (Brent) prices will soon surpass $70 on the back of a “resilient demand”. Oil prices, along with other commodities, are rallying rapidly, so traders should be wary of a correction.

By Osama Rizvi for Oilprice.com

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