WTI, Brent Futures Resume Gains as Rebalancing Accelerates

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- At the beginning of a new trading week, nearby delivery oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange moved mixed, with West Texas Intermediate March contact edging towards $60 per barrel (bbl) ahead of expiration Monday afternoon as traders priced in an accelerated relancing of the global oil market in the second quarter amid a slower return of U.S. shale production and better-than-expected recovery in fuel consumption that is seen leading to a growing gulf between output and demand.

U.S. shale production is positioned for a slow comeback after a rare frigid cold weather event last week that disrupted multiple energy supply chains and upended the Texas oil infrastructure, with an estimated 3.5 million barrels per day (bpd) of crude output shut in. Analysts expect producers and refiners in the region would face numerous problems to restart operations, in some cases similar to what might be encountered after a hurricane, such as damaged cooling towers and other equipment. This time, however, the cold snap also cracked pipelines and froze water supplies, which might take weeks to repair.

This problem is particularly acute for refiners where damages to complex equipment might takes weeks to repair. Some of the nation's largest refineries, including Exxon's 580,500 bpd Baytown plant and Marathon's 585,000 bpd Galveston Bay refinery in Texas City, are reported to have sustained extensive damages and remain shut as of Monday morning. Industry insiders also indicate that some refiners might use this pause to pull scheduled turnarounds in March forward.

The storm brought incalculable damages on the region's infrastructure and power grid that will ripple through its economy for weeks to come. Dallas Federal Reserve will release its monthly survey Monday on manufacturing and employment activity in the district with expectations for a wide gap between a negative 30 and 8.5 reading. The storm didn't hit Texas until the Valentines Day's weekend, which may have been beyond the sample's cut-off date, yet February's results will serve as a base of comparison for March. Nearly 14 million Texas -- accounting for half of the state's population -- remain without adequate water supplies, while power has been mostly restored with the cold blast past.

Even as the situation in Texas improves, global oil market is expected to tighten further in the second and third quarters, according to Goldman Sachs analysis, leading to larger-than-expected supply deficits.

"We now forecast that oil prices will rally sooner and higher, driven by lower expected inventories and higher marginal costs," said Goldman's Damien Courvalin.

The bank revised higher its price forecast for Brent in the second and third quarters by $10 each.

Last week's inventory report showed U.S. crude supplies continued to decline at accelerated pace, while total demand for refined fuels jumped above the five-year average for the first time since the onset of the pandemic in March 2020. Crude and gasoline stockpiles fell in line with the five-year average mid-February and distillate stocks remained about 6% above that level. Refiners, meanwhile, increased run rates for each week this month, reaching a 14.819 million bpd processing rate during the reviewed week. It must be noted, however, the refinery and production outages from Feb. 15-20 will likely show up in this week's data due out Wednesday.

In early morning trading, U.S. benchmark for March delivery advanced 62 cents to near $59.86 bbl, with the next month delivery April contact trading near parity. April Brent futures on ICE gained 56 cents to trade above $63 bbl at $63.51 bbl. NYMEX March ULSD future clawed back overnight losses to trade near $1.8196 gallon and front-month RBOB contract declined 0.96 cent to $1.7973 gallon.

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

Liubov Georges