Texas Freeze Ignites Worldwide Crisis in Oil Market

The supply chain has lost more than four million barrels per day, with refineries also slashing fuel production.

February 19, 2021

HOUSTON—What started as a power grid situation for some southern U.S. states has triggered a crisis across the globe in the oil market, Bloomberg reports. Nearly 40% of the U.S. crude production—more than four million barrels per day—has been shuttered, according to officials and traders. One of the largest oil refining centers in the world has had to significantly reduce output, while access to the waterways that deliver U.S. oil to the world has been interrupted.

“The market is underestimating the amount of oil production lost in Texas due to the bad weather,” Ben Luckock, co-head of oil trading at Trafigura Group, told Bloomberg. Brent crude oil topped $65 a barrel yesterday as supplies tightened.

Previously, when weather disrupted U.S. domestic oil production, the rest of the world felt barely a ripple. Now, U.S. oil exports impact crude markets in Europe and elsewhere. Outage estimates have increased as the freezing weather continues in Texas, with recovery not expected to start before the weekend. A complete resumption will likely be measured in weeks, not days.

“The Gulf Coast is a gasoline machine and sends products across the U.S. as well as international markets,” said Kitt Haines, an analyst at Energy Aspects. “For a brief period at least, this could help European refining.”

Texas will begin thawing today, as temperatures in Midland are forecasted to hit 45 degrees Fahrenheit, with an uptick to 56 degrees on Saturday. “Evidence from the last great Permian freeze off is that it can come back very quickly,” said Paul Horsnell, head of commodities research at Standard Chartered PLC. “But refineries are more likely to be prone to prolonged damage.”

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