Oil extended its weekly gain, with Brent crude closing the week higher at $62.91 per barrel. The WTI crude oil price closed the week slightly lower at $59.24 per barrel after surging above $61 a day before close. Nevertheless, oil prices are still at a 13-month high, exceeding pre-pandemic levels.
The impact of the Texas winter freeze on the US market may be easing, but the restart of operations could take much longer than expected. Even as electricity returns to most of the state and oil producers prepare to begin restoring lost output, the ongoing situation may contribute to an imminent global oil supply shortfall because of earlier underinvestment.
The week witnessed a recovery in China and Asia pacific crude oil demand amid cold weather in the Northern Hemisphere. Hence, global oil inventories continue to draw down. The US Energy Information Administration reported a massive 7.3 million barrel crude oil draw that hugely exceeded expectations.
The impact of the severe winter weather in Texas will also impact demand for petroleum refined products in the US, as the affected areas represent a major portion of the total US refining capacity.
Shortly before the Texas energy crisis and the US production slump amid the Permian Basin freeze storm, US crude oil exports spiked, and that was thought to be offset by a rebound in domestic production, incentivized by higher oil prices. At the same time as issues occur with the restart of Permian Basin shale oil production, weather conditions will have a short-term impact on the rollout of COVID-19 vaccines, which will impact oil demand recovery.
The latest figures from the Commodity Futures Trading Commission on Feb. 16 show that crude futures long positions on the New York Mercantile Exchange total 693,547 contracts, a decrease of -1,663 contracts from the previous week (1,000 barrels for each contract).
- Faisal Faeq is an energy and oil marketing adviser. He was formerly with OPEC and Saudi Aramco. Twitter:@faisalfaeq