Crude oil futures were slightly higher during mid-morning trade in Asia Feb. 16, extending overnight gains, as the ongoing Arctic blast across North America caused supply disruptions, propelling demand for heating fuel higher, reports S&P Global.
Disruptions in supply
At 11.48 am Singapore time (0348 GMT), the ICE Brent April contract was up by 34 cents/b (0.54%) from the Feb. 15 settle to $63.64/b, while the March NYMEX light sweet crude contract was up 79 cents/b (1.33%) to $60.26/b.
The cold weather had hit Texas hard, with temperatures falling to their lowest in 30 years, resulting in power outages and disruptions in production as well as refining activities in the Permian Basin.
“Concerns over oil supply disruptions from Texas continue to prop up the market. Cold weather, power outages, and logistical issues have all led to disruptions,” analysts from ING said in a Feb. 16 note, adding that as much as 1 million b/d of crude oil production may be disrupted due to the bad weather.
Increasing demand for heating fuel
However, analysts noted the supply disruptions are likely to be short-lived, with weather forecasts expecting temperatures to rise after Feb. 18.
Analysts at ANZ said in a Feb. 16 note that the cold temperatures have also increased demand for heating fuel, similar to conditions in North Asia last month.
The winter storm has also affected refineries in the region, with many having to reduce operating rates or shut down completely, resulting in a bullish movement in gasoline futures and product cracks.
The economy is recovering
At 11.48 am Singapore time (0348 GMT), the March NYMEX RBOB gasoline futures contract was up by 5.80% from the Feb. 15 settle to $1.7907/b.
“These refinery shutdowns have provided a boost to some of the product cracks as well, with both RBOB and heating oil cracks spiking higher on the back of the news,” analysts at ING said.
While the weather conditions in the US exacerbate the prevailing supply tightness for crude oil and prop up prices temporarily, analysts believe there is ample evidence of support in the form of expectations of a speedy economic recovery following vaccine rollouts and an upcoming US stimulus package, as well as supply curtailments by OPEC+ countries, that may result in oil continuing to trade at strong levels.
Analysts at ANZ also noted that while demand is about 8%-9% below pre-pandemic levels, supply constraints are playing their part in balancing the oil markets.
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Source: S&P Global
