The unusual icy conditions in the US southern state of Texas have led the country's oil production to fall by 40 per cent, knocking off 4 million barrels of crude per day and causing Brent to rally above $65 per barrel for the first time in more than a year.
The outage in oil supplies was strong enough to rally prices, which gained six per cent this week alone, capping a nearly 19 per cent rally this month. Frozen energy infrastructure has temporarily shut-in nearly almost 3.4 per cent of global supply from the world's largest producer of oil and gas.
Millions of people have been left without power as temperatures plummeted to levels seen in the northern-most US state of Alaska.
On Sunday, the state recorded temperatures as low as minus 18 degrees Celsius (-0.4 Fahrenheit). Existing energy infrastructure failed to cope with extreme cold, with the state unable to provide adequate heating to residents. Nearly 21 people have also succumbed to the winter storms sweeping across the southern US.
While the domestic implications are dire, the Big Freeze across the US was large enough to shake the global oil market.
The US is the world's largest producer of oil and gas, and prior to the wintry storms, its total output was 11m bpd, according to the Energy Information Administration (EIA).
With production taken offline, US oil stockpiles are showing a marked decrease, signalling further bullishness for the markets, said Ipek Ozkardeskaya, senior analyst at Swissquote.
"The API data showed a 5.8-million-barrel decline in US oil inventories last week, and the more official EIA data, due today, should confirm a jump as well," she said.
"The rising stockpiles should continue given a boost to energy prices in the short-run, however, long-term players keep in mind that the Texas situation is temporary, the latest boost to oil prices should not lead to sustained medium-term gains."
Brent, the international benchmark for two-thirds of the world's traded crude oil, surged as high as $65.46 per barrel during early trading on Thursday. The benchmark was up 0.45 per cent, trading at $64.63 per barrel at 4.17pm UAE time.
West Texas Intermediate, the US gauge, also gained from the supply outages, with the benchmark up 0.38 per cent at $61.37 per barrel.
The steep decline in US production is also likely to figure in the discussions over production restrictions by Opec+, which will convene an extraordinary ministerial meeting on March 3.
The group is drawing back 7.2m bpd, with Saudi Arabia, its largest exporter, committing to slash production by 1m bpd until the end of March.
Addressing an online conference held by the International Energy Forum in Riyadh, Saudi Arabia's energy minister Prince Abdulaziz bin Salman urged the Opec+ oil alliance, led by his country and Russia, to remain cautious as they prepare to consider further output increases.
"I must warn once again against complacency,” he said on Wednesday. "The uncertainty is very high and we have to be extremely cautious. The scars from the events last year should teach us caution."
Oil prices fell to historic lows last year, with WTI trading as low as minus $40 per barrel in April as the oil industry grappled with a steep decline in demand from the Covid-19 pandemic.
"Energy prices remain elevated, as vast swathes of US refining and extraction capacity remains shuttered due to the Texas big freeze," said Jeffrey Halley, senior market analyst, Asia Pacific at Oanda.
"The global recovery trade is well and truly alive in the commodity space," he added.
