DTN Oil

Oil Futures Jump as Arctic Blast Disrupts Texas Energy Grid

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Crude and refined products futures nearest delivery on the New York Mercantile Exchange advanced in early trade Tuesday, lifting the West Texas Intermediate, ULSD and 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 oil producing wells, threatening to cut off fuel supplies from one of the world's largest energy hubs.

In early trade, NYMEX WTI for March delivery futures gained 39 cents to $59.89 per barrel (bbl) after trading at a $60.95 high, while the Brent April contract on the Intercontinental Exchange traded little changed near $63.22 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 7.08 cents or 4% to a fresh 13-month spot high $1.7633 gallon.

The rare blast of Arctic weather prompted Texas's electric grid operator, ERCOT, to impose rotating blackouts Monday, leaving nearly three million homes and businesses without power. More than 200 million Americans remain under some kind of winter advisory, according to the National Weather Service.

"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 refinery and oil producers' operations across the U.S. Gulf Coast, prompting multiple shutdowns in the nation's key energy hub. Wood McKenzie estimates that between 3.3 million and 3.8 million barrels per day (bpd) of refining capacity along the Texas Gulf Coast was offline Monday afternoon, warning that power outages were making analysis difficult.

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)

The power outages 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.

The massive disruption to Texas's supplies come 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 dropped from 140 million bbl at the end of June 2020 to just 36 million bbl currently.

U.S. total products supplied, a measure for overall demand, reached 20.2 million bpd during the week ended Feb. 12, the highest weekly rate since demand collapsed in mid-March 2020. International Energy Agency said in its largest market report that a recovery in fuel demand would outstrip production in the second half of the year, prompting even more rapid stock draws.

On the economic data calendar, the second reading on Eurozone's gross domestic product for the fourth quarter revealed a slower pace of contraction at a negative 0.6% versus 0.7% from the first estimate. The fresh set of data, however, follows a sharper downturn for the bloc's manufacturing activity in the reviewed period at a negative 1.6%. A large swath of the eurozone's service industry remains shutdown as a result of continued lockdown measures and slow rollout of vaccination programs in the continent.

Liubov Georges can be reached at liubov.georges@dtn.com

Liubov Georges