OIL MARKETS
Oil Prices Reach Fresh Highs as Cold Blast Hits Texas
Freezing weather boosted demand for fuel and power, while threatening oil-and-gas output in key production state
Frigid temperatures across swaths of the U.S. injected new momentum into the rally in energy markets, putting West Texas Intermediate crude on course to settle above $60 a barrel for the first time since the early days of the Covid-19 pandemic.
WTI crude futures gained 1.8% to hit $60.53 a barrel Monday morning, extending their advance in 2021 to 25%. Brent crude, the international benchmark, climbed 1.2% to hit a 13-month high of $63.20 a barrel in London. Natural gas futures at Henry Hub in Louisiana were up 3.3% at $3.01 per million British thermal units.
The fresh leg in the energy market’s recovery from the coronavirus shock came as a blast of cold weather boosted demand for power and fuel, while threatening to knock oil production in Texas. Over 150 million Americans are under some kind of winter advisory, the National Weather Service said Monday. The agency is forecasting heavy snow and significant ice from the southern plains and Ohio Valley to the Northeast.
Some analysts think investors have pushed oil prices above levels justified by supply and demand, but others expect them to remain buoyant.
“We haven’t seen any surprising factor that would stop this kind of rally, at least not yet,” said Carole Nakhle, chief executive of consulting firm Crystol Energy. Demand is on the mend, stockpiles of crude that ballooned last year are shrinking and the Organization of the Petroleum Exporting Countries is holding millions of barrels a day back from the market, she added.
Higher crude prices are feeding through to more expensive gasoline at the pump. Gasoline prices rose for a fifth consecutive week to a national average of $2.45 a gallon on Feb. 8, their highest level in more than a year, according to GasBuddy, which tracks retail fuel prices. Drivers should expect gasoline prices to keep rising in the months ahead, said Patrick De Haan, head of petroleum analysis at the firm.
The Electricity Reliability Council of Texas said rotating power outages that began early Monday are likely to last throughout the morning. The grid operator, known as ERCOT, urged consumers to reduce their electricity usage and said demand reached a winter record of 69,150 mega watts on Sunday evening. That is more than 3,200 mega watts higher than the previous peak in January 2018.
The power outages could prompt production pauses in the Permian Basin, leading to a moderate decline in oil output this month, according to Rystad Energy, a consulting firm.
Not only did the freezing weather lift demand for electricity, it also hit supplies by pushing many generating units to stop producing power. More than 30,000 megawatts of generation was forced off the system, according to ERCOT.
“Every grid operator and every electric company is fighting to restore power right now,” ERCOT President Bill Magness said in a statement.
Surging demand for natural gas, which is burned to produce electricity and heat homes, prompted prices to shoot higher in several regional trading hubs. On Friday, they rose as high as $500 per million British thermal units in the Midwest and surpassed $100 at hubs in Texas, the Rockies and Midcontinent, according to S&P Global Platts.
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U .S. natural-gas demand will hit a single-day high of 169 billion cubic feet on Monday, the commodities-data provider forecast. Gas production was also curtailed last week, particularly in Texas and the Midcontinent, pushing U.S. output down by nearly 4.2 billion cubic feet a day to 88.3 billion on Friday, according to Platts.
The rally is the latest reminder of the natural gas market’s sensitivity to extreme weather, after several mild winters brought about a glut of the fuel that subdued prices globally. Earlier this year, freezing conditions in northeast Asia sparked a scramble by utilities to secure cargoes of liquefied natural gas, prompting LNG prices in the region to hit all-time highs.
Also adding to energy bills: Propane prices have accelerated thanks to the increased popularity of patio heating during the pandemic. And rising prices for diesel-like heating oil have boosted profit margins at petroleum refiners, supporting the broader oil market by encouraging them to buy more crude, said Greg Newman, chief executive of Onyx Capital Group, which specializes in oil swaps.
For oil prices, the cold snap helped to extend a monthslong recovery powered by production curbs by the Organization of the Petroleum Exporting Countries and its partners, led by Russia.
A key question for oil traders now is whether the cartel opts to relax the cuts at a meeting in March. Saudi Arabia will likely resume production of the million barrels a day it decided to take off the market in January, boosting global supplies, according to Ms. Nakhle.
“They are likely to stop that, now that prices are above $60 a barrel,” she said.
Write to Joe Wallace at Joe.Wallace@wsj.com
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