Texas freeze helps rival oil exporters like Saudi Arabia and OPEC members – tech2.org

Texas freeze helps rival oil exporters like Saudi Arabia and OPEC members


Pump jacks operate in the Permian Basin in Midland, Texas, USA, on Saturday, February 13, 2021.

Matthew Busch | Bloomberg | fake images

The shocking winter storm in Texas, which left millions of people without power and claimed dozens of lives, also froze an important local product: Lone Star State oil production, which cut about 4 million barrels a day from the American production.

The consequence will be an increase in revenues and potentially an increase in exports among rival oil-producing nations, commodity experts say.

Analysts estimate that the total volume of oil lost to the Texas production freeze at anywhere between 18 million and 40 million barrels and about a fifth of US refining capacity was shut down. And while temperatures are rising again and production is expected to pick up mainly in late this week, the impact of the deficit on oil markets is already visible in the recent jump in crude prices.

International benchmark Brent crude has risen more than $ 6 a barrel since the storm began to hit Texas production facilities in mid-February. The US benchmark West Texas Intermediate index is up around $ 3 a barrel.

The development, while adding another blow to Texas on top of the devastating damage and human suffering caused by the storm that strikes once in a decade, translates to the global market as a potential boon for other oil producers, such as those of Middle East. East.

“The Texas storm is helping Saudi and its partners tremendously by accelerating the path to inventory normalization,” said Peter Sutherland, president of Houston-based energy investment firm Henrietta Resources LLC.

“The simultaneous reductions in crude and refined products are a big tailwind into the spring,” he told CNBC. “It is not just a positive sentiment; the roughly 40 million barrels lost due to the storm help tighten the market.”

OPEC is expected to increase production

The inventory drawdown continues a trend in which oil prices rise steadily from their pandemic-induced record lows nearly a year ago. Brent crude is up 30% so far this year, and Goldman Sachs predicted it could hit $ 75 by the end of this year, a level not seen since the fall of 2018.

This could influence decision-making among OPEC members at their next meeting on March 4. While the organization had prioritized production cuts during much of the pandemic to keep oil prices below a floor, the more promising outlook for demand, and the gradual normalization of global supply, provide incentive for these Producers accelerate the rate at which they will increase their production.

“Certainly I would expect Saudi Arabia to boost production given the current prices the market has seen,” said Yousef Alshammari, chief executive of oil markets consultancy CMarkets.

“The supply disruption in Texas may lead OPEC + and Saudi Arabia to increase production to some extent and much of that increased production will go to higher priced exports.” OPEC + is the flexible alliance of 13 OPEC states and 10 non-OPEC oil producing countries.

Saudi Arabia’s voluntary production cuts of 1 million barrels a day end in March and is already expected to gradually start to recover supply in April. But that also means that the kingdom cannot take advantage of higher crude prices by increasing exports until the production cut period is over.

Still, “all oil producers, including Saudi Arabia, enjoy the benefit” of the price increase, said Tamas Varga, a senior analyst at PVM Oil Associates. “US crude oil exports will fall in the coming weeks and this provides support for international grades, again support for oil producers.”

‘Very small globally’

Some analysts do not see the loss of Texas production as a consequence, not even in the medium term.

The impact of a loss of 4 million barrels a day “is very small globally, as the world produces more than 80 million barrels a day of oil,” Rene Santos, supply manager for North America, told CNBC. S&P Global Platts Analytics.

“Freezes occur in the United States every year, but the magnitude that we have experienced in recent days does not happen very often,” he said. “Also, the freezes are short-lived.”

Varga from PVM agrees. “The situation will probably normalize soon and in the medium term the impact of the Texas freeze will be negligible, I think,” he said.

But long-term market dynamics are still in favor of OPEC members, not because of the Texas storm, but thanks to last year’s devastating oil production shutdowns in the United States when crude prices tumbled. The high cost of shale production in the US meant that most producers could not survive the impact of the closures. The US rig count is still 50% below 2019 levels, despite rising prices.

“US oil production is not expected to recover to 2019 levels, which will leave OPEC + with much more influence in the markets in 2021,” Alshammari said.

In the long term, the impact of a climate impact like this month “really depends on how Texas will deal with such crises in the future,” he added. “I hope they will be more resilient to such adverse weather conditions on the upstream supply side, but I certainly expect Saudi Arabia to have a bigger market share in the long term due to the loss of market share from shale production.”

.

Source link