Power outages disrupt Midcontinent and Gulf Coast petroleum markets
2/25/2021
Beginning February 13, 2021, a major winter weather system characterized by extreme cold spread across much of the central United States, disrupting energy systems and causing serious health and safety issues. The extreme weather particularly affected Texas, where utility customers experienced widespread outages and rolling blackouts. The severe weather persisted through much of the week, putting significant pressure on the petroleum complex along the U.S. Gulf Coast, where the infrastructure has rarely needed to accommodate sub-zero temperatures, as well as some states in the Midcontinent. Several Texas refineries accounting for a significant share of total U.S. refining capacity fully or partially shut down, numerous inland crude oil wells closed, and oil pipeline infrastructure was disrupted. The extreme cold also affected petroleum product pipelines; production and refinery operations in the Midwest
Crude oil has rallied close to 30% since early January when Saudi Arabia announced their unilateral production cut to support the market through the winter months of Covid-19 despair. As the market continues to tighten the call for even higher prices has continued to support demand, both from refineries and speculators enjoying the continued momentum. Next week's OPEC+ meeting is likely to set the tone into Q2 as they decide on whether to bump up production or seek even higher prices before the pick up in demand has stared to fully materialize.
Oil Production, Demand Drop Amid Energy Crisis in Texas
Crude oil production in the United States plummeted but so too did demand amid last week’s bitter freeze that caused an energy crisis in Texas. Stockpiles ticked up as a result, the Energy Information Administration (EIA) said in its latest Weekly Petroleum Status Report (WPSR) on Wednesday.
U.S. commercial crude inventories for the week ended Feb. 19, excluding those in the Strategic Petroleum Reserve (SPR), increased by 1.3 million bbl from the previous week. At 463.0 million bbl, stocks were on par with the five-year average for the comparable week, the agency said.
U.S. Oil Production Unlikely to Gain Ground in 2021, Dallas Fed Economists Say
Even as prices recover, U.S. oil production is likely to only inch ahead – at best – in 2021 as producers focus on cash flow and returning capital to shareholders in bids to win back investors’ trust following the severe slump of 2020, economists at the Federal Reserve Bank of Dallas said Monday.
Kunal Patel, an economist at the Dallas Fed, as it is known, said public companies are “reluctant to spend more” on drilling while the pandemic remains a part of American life and a full demand recovery still remains uncertain. Speaking during a webinar hosted on Monday by the International Energy Forum (IEF), Patel noted that most companies during the current earnings season have repeated the same refrain: They are focused on bolstering cash flow in order to support dividends and buy back stocks to increase the value of existing investors’ holdings.