Crude and refined products futures on the New York Mercantile Exchange advanced on Tuesday, lifting West Texas Intermediate, Ultra-Low Sulfur Diesel (ULSD) and gasoline (RBOB) contacts to their highest price points since early January 2020 after record-setting cold weather in Texas shuttered the nation's largest refineries and shale oil fields, threatening to cut off fuel supplies from one of the world's largest energy hubs.
Near 9.30 AM ET, NYMEX WTI for March delivery futures surged 54cts to trade just above $60 bbl, while the Brent April contract on the Intercontinental Exchange slipped lower at $63 bbl. Both crude benchmarks added over 12% in value since the beginning of February. NYMEX March ULSD futures rallied 4.92cts to $1.8206 gallon and March RBOB futures spiked 7.08cts or 4% to a fresh 13-month spot high $1.7633 gallon.
The rare blast of Arctic air prompted Texas's electric grid operator, ERCOT, to impose rotating blackouts on Monday, leaving millions of homes and businesses without power.
"Every grid operator and every electric company is fighting to restore power right now," ERCOT President Bill Magness said in a statement. Not only did the deep freeze lift demand for electricity, it also disrupted operations of oil refineries and producers in the region, prompting multiple shutdowns in the nation's key energy hub. Much of pipeline capacity in Texas runs overground and equipment is largely unwinterized to withstand sub-freezing temperatures. Wood McKenzie estimates that between 3.3 and 3.8 million bpd of refining capacity along the Texas Gulf Coast was offline Monday afternoon, with little clarity when operations could resume. Related: How India’s Hunger For Oil Could Transform The Middle East
As of Tuesday morning, the following refineries had halted operations in Texas:
--Saudi Aramco's Motiva Enterprises LLC in Port Arthur, Texas refinery (630,000 bpd of throughput capacity) -- the nation's largest
--Marathon Petroleum Corp.'s Galveston Bay plant south of Houston (585,000 bpd of throughput capacity)
--Exxon Mobil Corp. shut its 584,000 bpd Baytown refinery near Houston, as well as some units at its refinery in the town of Beaumont about 70 miles to the east
--Total SE reduced crude processing to minimal levels and shut a key refining unit at its Port Arthur, Texas, plant (185,000 bpd of throughput capacity) among others.
The frigid weather also prompted shutdowns in the Permian Basin, taking offline nearly 1 million bpd in oil output, according to Rystad Energy, a consulting firm. Texas produces roughly 4.6 million bpd of oil. Related: Has This Record-Breaking Oil Rally Gone Too Far?
The massive supply disruption came at a time when nationwide crude stockpiles are shrinking at an accelerated pace and the Organization of the Petroleum Exporting Countries are holding millions of barrels a day off the market. Bank of America estimates that the combined surplus of crude, gasoline and distillate inventories against a year ago dropped from 140 million bbl at the end of June 2020 to just 36 million bbl currently.
Meanwhile, U.S. total products supplied, a measure for fuel demand, reached 20.2 million bpd during the week-ended Feb. 12, the highest weekly rate since demand collapsed in mid-March 2020. The International Energy Agency expects that a recovery in global oil demand would outstrip production in the second half of the year, prompting even quicker inventory draws.
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Further disrupting global oil markets, a massive earthquake in northeastern Japan this weekend knocked off about 20% of the country’s refining capacity. As much as 743,000 bpd of oil-processing capacity has been idled in the world’s fourth-biggest oil importer. With major supply shocks crucial markets, oil prices are heading for yet another week of wild swings.
By Liubov Georges for Oilprice.com
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