Oil fell from recent highs to the lowest in a week as Texas energy firms slowly resumed, while margins for processing gasoline surged as Gulf Coast refineries are seen taking weeks to restart operations after the deep freeze.
Crude futures in New York plunged $1.28 on Friday, its biggest decline in dollar terms since late December. Producers including Marathon Oil Corp. have begun using restored power from local grids or generators to restart output across the Eagle Ford shale basin that was halted by the frigid weather.
Texas refiners halted about 20% of the nation’s oil processing amid power outages and severe cold. However, on Friday, firms in the region were expected to prepare for production restarts as electric power and water services slowly restore.
Meanwhile, fuel margins jumped with four of the biggest refineries in Texas seen taking several weeks to resume operations, raising the potential for fuel shortages.
Andrew Lebow, senior partner at Commodity Research Group stated that crude production is going to come back up a lot faster than refineries, leaving more crude available than there will be demand for it coming up over the next few weeks.
Oil is still up more than 20% this year due to OPEC+ supply curbs, Saudi Arabia’s additional cuts and hopes of a demand rebound due to COVID-19 vaccinations.
Goldman Sachs saw a minimal oil price impact from the deep freeze in Texas as the supply and demand impacts balance out. Still, Brent’s nearest timespread remains at one-year highs in a structure indicating tighter supplies and WTI’s discount to Brent has widened further past $3 a barrel this week, as replacements are sought for U.S. crude exports.
Goldman estimates, on the demand side, industrial and shale downtime will reduce refinery gas by 50,000 bpd and diesel consumption by 150,000 bpd, however low temperatures and power outages should increase heating demand for LPG by 80,000 bpd and for diesel powered generators by 200,000 bpd.
The cold snap and power cuts affected more than 20 refineries in Texas, Louisiana and Oklahoma. Crude-processing capacity fell by about 5.5 million barrels a day.