SINGAPORE (BLOOMBERG) – Brent oil rose past US$65 a barrel as a worsening US energy crisis took out almost 40 per cent of the nation’s crude production.
Futures in London climbed as much as 1.4 per cent at the open after closing at the highest in almost 13 months. The global crude benchmark last traded above US$65 on Jan 21, 2020, before Covid-19 wreaked havoc on global energy markets.
More than four million barrels a day of US crude output is now offline, according to traders and executives, amid an unprecedented cold snap in Texas that’s frozen well operations and led to widespread power cuts.
However, a spate of refinery outages has curbed demand for crude in the US, while gasoline consumption is also down as the cold keeps more Americans off the road.
The supply shock is aiding an already frothy global oil market and is starting to impact global energy flows, with traders snapping up ocean-going tankers to haul millions of barrels of European diesel to the US. Adding to the bullishness, the American Petroleum Institute reported an almost six million-barrel drop in US crude stockpiles before official data due later on Thursday.
Crude is up around 25 per cent this year as Saudi Arabia’s deep output cuts and an improving demand outlook encourage investors. The rally was tempered on Wednesday following a Dow Jones report citing unnamed advisers that the kingdom is planning to boost production in the coming months. Many analysts expect that the Saudis will pump more from April given the recent surge in prices.
“This cold snap is the perfect storm for the oil market, but it’s probably not the only catalyst that has driven oil to these heights,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. “We have Saudi Arabia supporting the market and the US inventories are coming off at such a rapid pace.”
Saudi Arabia’s energy minister, meanwhile, urged fellow members of the Opec+ oil alliance to remain cautious as they prepare to consider further output increases. The group will gather in early March to decide whether they can revive some more of the production halted during the coronavirus crisis.