Oil drops as investors gauge big chill impact on US refineries

US West Texas Intermediate crude fell 2% to $59.3 a barrel on Friday

FILE PHOTO: A pump jack operates in the Permian Basin oil and natural gas production area near Odessa, Texas, U.S., February 10, 2019. Picture taken February 10, 2019.    REUTERS/Nick Oxford/File Photo

Oil prices slid as much as 2 per cent in early trade on Friday, adding to overnight declines, on worries that refineries shut by a big freeze in the US South will take some time to revive operations and dent crude demand.

US West Texas Intermediate crude fell 2 per cent to $59.3 a barrel on Friday, after declining 1 per cent on Thursday.

Brent crude dropped 1.7 per cent to $62.86 a barrel, after declining 0.6 per cent in the previous session.

Both benchmark contracts rallied to 13-month highs on Thursday driven by the historic freeze in US southern states. While analysts estimate the extreme cold has shut in as much as one-third of US crude production, attention has now turned to the impact on refiners.

"The market is concerned about the refinery outages in Texas, where arctic weather has caused power outages and frozen wells and pipes," ANZ Research said in a note.

The lack of demand from refineries will likely lead to builds in crude stocks over coming weeks, even though around 3.5 million barrels per day of US oil output has been shut, ANZ said.

Citi analysts said in a note that some US refineries might bring forward maintenance work normally scheduled for the spring, ahead of the summer driving season.

"Refinery outages could be deeper and longer lasting, especially ahead of the spring maintenance season, as some plants could decide to anticipate planned turnarounds of roughly

500,000 bpd on aggregate over the next month," Citi analysts said.

US crude stockpiles fell more than expected in the week to February 12, before the freeze, with inventories down by 7.3-million-barrel to 461.8-million-barrel, their lowest since March, the Energy Information Administration reported on Thursday.