WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and the Brent contract on the Intercontinental Exchange continued higher in overnight trade, sending the U.S. crude benchmark well above $60 per barrel (bbl) mark as traders assess supply disruptions from Texas oilfields after a blast of Arctic air debilitated drilling equipment, cut supply chains and froze wellheads in some instances, with analysts estimating the ripple effect from the deep freeze to reduce output for several weeks.
In early trade, NYMEX West Texas Intermediate futures for March delivery rallied 62 cents to near $60.67 bbl, while the international crude benchmark Brent April contract on the Intercontinental Exchange advanced 77 cents to trade above $64 bbl. Both crude benchmarks added over 13% in value since the beginning of February.
NYMEX March ULSD futures added 1.78 cents to $1.8322 gallon and March RBOB futures gained 2.57 cents to trade at better than a 13-month high $1.7986 gallon after surging over 5% in the previous session.
The cold snap in the southcentral United States reduced shale output somewhere between 2 million barrels per day (bpd) and 3.5 million bpd as of Wednesday morning, with severe disruptions expected to last for days if not weeks. Wells in the prolific Permian Basin produce a lot of water, so production streams can easily freeze at the surface under subzero temperatures. Additionally, power outages across Texas have left oil pumps and auxiliary facilities without electricity for days, while icy roads undermine supply chains and limit the accessibility to repair equipment.
"Some producers in West Texas had to shut in entire fields when they lost power," said Texas Railroad Commissioner Jim Wright, one of the state's three elected industry regulators.
Chevron Corp. said the widespread power loss had led to "a significant production shut-in of our Permian assets," while Exxon Mobil said its shale operations in the region were operating at "reduced capacity."
What's worse, the Arctic air is expected to last over Texas until at least Friday, with Dallas and Fort Worth area battling yet another winter storm with more snow and sleet expected through tonight. This raises the risk that supply disruption in the region will be more severe and last longer than previously thought.
Citibank Wednesday morning estimated a cumulative production loss of around 16 million bbl of oil output through early March. Even prior to the weather emergency, U.S. crude production was expected to decline below 11 million bpd by midsummer and stay well below the pre-pandemic level of 12.2 million bpd until at least 2023, according to the estimates from the U.S. Energy Information Administration. The agency will provide the latest update on production estimates in its weekly report delayed one day until Thursday this week due the Presidents' Day holiday on Monday. The data won't reflect this week's supply outages. American Petroleum Institute will release its inventory data at 4:30 p.m. ET.
The unusual freezing weather conditions for the region combined by widespread power outages also caused several Texas refineries to shut down or reduce operations. Out of roughly 5.9 million bpd of Texas refining capacity, at least 4 million bpd is estimated to be shut down entirely.
Among those refineries that have halted operations are the nation's largest 630,000 bpd plant at Port Arthur, Texas, operated by Saudi Aramco's Motiva Enterprises LLC; Marathon Petroleum Corp.'s Galveston Bay plant south of Houston with 585,000 bpd of throughput capacity; and Exxon Mobil's 584,000 bpd Baytown refinery near Houston among others.
The Houston Ship Channel, a 53-mile waterway crucial to oil and fuel exports, also remains shut due to hazardous weather conditions.
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