West Texas Intermediate jumped over $60 per barrel after the Polar Vortex that brought unusually cold weather to a large part of the U.S. froze—literally—a third of oil production.
Citing unnamed sources from the industry familiar with the details, Bloomberg reported that U.S. oil production is now 3.5 million bpd lower than it was before the cold snap hit, marking the largest ever production decline in history. In the Permian, production came down by as much as 65 percent.
According to the report, temperatures in Texas were so low at the start of this week that oil and gas liquids were freezing at the wellhead as well as in pipelines, which are mounted on the ground rather than laid underground.
“Some producers, especially in the Permian Basin and Panhandle, are experiencing unprecedented freezing conditions which caused concerns for employee safety and affected production,” said the Texas Railroad Commission on Monday.
Besides the plunge in oil production, Texas is also in for a further natural gas shortage because of the well freeze, which has been coupled with a surge in demand for heating.
CBS Dallas reported Tuesday that Texas Gas Service, one of the largest gas distributors in the Lone Star State, had warned supply could be tight for the duration of the cold spell because of the abovementioned combination of factors. Meanwhile, a regional electricity supplier in Texas urged its clients to switch to another because of the exploding prices that hit $9,000 per MWh earlier this week.
The shortage of gas, as well as the forced shutdown of several power plants that were not rated for such temperatures, according to energy expert Art Berman, have already caused blackouts in Texas. At the same time, the cold froze half of the state’s wind power capacity.
The good news—for Texans, if not for oil producers—is that the cold weather should be gone by the end of the week. This means the oil rally may also be over soon after as production ramps up at unfrozen wells.
By Irina Slav for Oilprice.com
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Yet, the US Energy Information Administration (EIA) has grudgingly acknowledged the loss of 1 mbd , then raised it to 2 mbd and finally 3 mbd. But we heard today that the loss has been 3.5 mbd. On this basis the loss will keep creeping up until it hits my figure of 6.4 mbd.
I estimate current US oil production at 6-7 mbd and this could be one important bullish factor contributing to the impressive surge of oil prices.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London