Frigid temperatures throughout the US created havoc for oil markets, increasing heating oil and natural gas demand. The winter storm shut down several hundred thousand barrels per day of Texas oil production (references to “hell freezing over” come to mind), and the state is seeing 30-yr record low temperatures. With supplies cut, WTI crude oil prices popped above $60/bbl during the long weekend. Those gains, though, were short-lived, and on Tuesday morning, prices are a bit below that threshold.
In addition to limiting crude oil, the winter storm is also impacting refining. OPIS reports that 2 MMbpd of refining activity in Texas was shut temporarily because of the freeze, and another 1.6 MMbpd had already been offline for maintenance. Pipelines have been turned off due to power outages, putting additional strain on supply chains. Last year saw a record-breaking hurricane season, and now 2021 is raising the stakes with record-low temperatures.
Although the winter storm may temporarily slow progress, rig counts in the US are beginning to rise again. Baker Hughes reported a growth of seven rigs last week, adding yet another week of gains. Since October 2020, rigs have risen in 19 out of 20 weeks, taking the count from an August 2020 low of 172 rigs to the current 306 rig posting – a 78% increase. Even if rig counts doubled from here, though, they would only be scraping the bottom of the average count from 2018-2019. While US drilling activity is slowly returning to normal, there’s a long way to go before shale producers are financially ready to begin substantially increasing their growth once again.
Oil prices may not be quite as high as they were over the long weekend, but they remain elevated. Crude oil is trading at $59.97 this morning, a gain of 50 cents from Friday’s closing price.
Fuel prices are seeing even larger gains this morning, given the reductions in Gulf Coast refining output. Diesel prices are trading at $1.8092, up 3.8 cents (2.1%) from Friday’s close. Despite reduced driving because of dangerous road conditions, gasoline prices are seeing the largest gains. Gasoline prices are $1.7574, up 6.5 cents (3.8%).