Why the Big Freeze in Texas matters for global oil markets

Icy temperatures have frozen energy infrastructure in the US and sent oil prices surging

Pump jacks operate in the Permian Basin in Midland, Texas. The Arctic freeze gripping the central US is raising the spectre of power cuts in the state and placing pressure on energy already trading at record prices. Bloomberg

Brett Archibad entertains his family as they try to stay warm in their home the Blackhawk district in Pflugerville, Texas. Anger about the state’s power grid failure mounted on Tuesday. AP

Howard and Nena Mamu eat dinner at their home in the Glenwood district in Hutto, Texas. AP

People queue to buy food at a petrol station in Pflugerville, Texas. Most homes in the area had been without electricity for nearly eight hours. Power companies performed rotating cuts to protect the grid. AP

People queue to fill their empty propane tanks in Houston. The temperature stayed below freezing on Tuesday. AP

Christopher Harris, left, his wife Novi and their daughter Keeva occupy an office suite at a pop-up warming centre in Richardson, Texas. It is one of seven such places in the city, offering a place to keep warm and charge devices. AP

Freezer sections are closed off at Fiesta supermarket on February 16, 2021, in Houston, Texas. Winter storm Uri brought historic cold weather, power cuts and traffic accidents to Texas as storms swept through 26 states. AFP

Shell Timewise service station in Pflugerville, Texas, turned away people who needed petrol. Most homes in the area were without power for nearly eight hours. AP

The grounds of the Capitol in Austin, Texas, are covered in snow. AP

A car park is covered in snow at DIY store Home Depot in the Westbury district in Houston. A winter storm that is making its way from America’s southern plains to the northeast is affecting air travel. AP

The Trinity River is mostly frozen after a snow storm in Fort Worth. A frigid blast of winter weather across the US has left more than two million people in Texas without power. AP

Annie Boon, 5, creates a snow angel while sledging with her family in Austin. AP

People play in the snow in Butler Park in Austin. AP

A worker clears snow from a car park in Midland, Texas. Blackouts triggered by frigid weather have spread to more than four million homes and businesses across the central US and parts of Mexico. Bloomberg

Francisco Sanchez wipes snow off his car with a boogie board before going out sledging with his kids at Memorial Park in El Paso, Texas. Reuters

Horses wait for the ice in their trough to be broken in Bastrop county, near Austin, Texas. Reuters

Mia Donjuan, 4, falls off her sledge as she slides down a hill in the Elmwood district of Dallas. AP

Baylor University students enjoy their snow day without classes while posing near a fountain on campus in Waco, Texas. AP

Pedestrians walk on along a snow-covered street in Austin. Winter storm Uri has brought unusual cold to Texas, causing traffic delays and power cuts. Storms have swept across 26 states. AFP

Honey Russell clears the pavement outside her home after heavy snowfall in Fort Worth, Texas. Winter storm Uri has brought freezing weather to Texas. AFP

People push a car free after spinning out in the snow in Waco, Texas. A winter storm that brought snow and ice across the southern Plains stretched its frigid fingers down to the Gulf Coast. AP

A woman walks through falling snow in San Antonio. AP

Two people play in the snow in San Antonio. AP

Snow ploughs clear a lane of the I-30 motorway in Dallas. The Nashville Predators and the Dallas Stars NHL hockey game on Monday was postponed at the request of Dallas Mayor Eric Johnson owing to a power shortage. AP

The sun sets as a lone vehicle sits in a snow-covered parking garage at American Airlines Centre. AP

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.