Brent oil blew past $65 a barrel as a cold blast that’s taken out almost 40% of US crude production morphed into a global supply shock.
Futures in London jumped as much as 1.8% at the open after closing at the highest in almost 13 months. The global crude benchmark last traded above $65 on Jan. 21, 2020 before Covid-19 wreaked havoc on energy markets.
More than 4 million barrels a day of US oil output is now offline, according to traders and executives, amid an unprecedented cold snap that’s frozen well operations and led to widespread power cuts.
A spate of refinery outages has curbed demand for crude in the country, however, while gasoline consumption is also down as the icy conditions keep many Americans off the roads.
The supply shock is aiding an already frothy global oil market and is starting to roil global energy flows, with traders snapping up ocean-going tankers to haul millions of barrels of European diesel to the US.
Adding to the upward momentum, the American Petroleum Institute reported an almost 6 million-barrel drop in US crude stockpiles before official government data due later on Thursday.
Brent’s prompt timespread moved further into a bullish backwardation structure, reflecting the tightening global supply backdrop.
Estimates for how long the US outages may last have gotten longer in recent days as analysts try to figure out the timespan involved in thawing out infrastructure.
As American barrels are removed from the market, North Sea traders have been frantically bidding for the region’s cargoes. Buyers in Asia, meanwhile, have been snapping up Middle Eastern crude at higher premiums.
Crude is up 26% this year as Saudi Arabia’s deep output cuts and an improving demand outlook encourage investors.
The rally was tempered on Wednesday following a Dow Jones report citing unnamed advisers that the kingdom is planning to boost output in the coming months. Many analysts expect that the Saudis will pump more from April given the recent surge in prices.
“This cold snap is the perfect storm for the oil market, but it’s probably not the only catalyst that has driven oil to these heights,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. “We have Saudi Arabia supporting the market and the US inventories are coming off at such a rapid pace.”
- Brent for April settlement climbed 1.2% to $65.12 a barrel on the ICE Futures Europe exchange as of 12:02 p.m. in Singapore
Saudi Arabia’s energy minister, meanwhile, urged fellow members of the OPEC+ alliance to remain cautious as they prepare to consider further output increases. The group will gather in early March to decide whether it can revive some more of the production halted during the coronavirus pandemic.
The cold blast has pushed WTI’s prompt timespread into a bearish contango structure, given the lack of demand from disrupted refineries. However, the similar spread for Brent is now 89 cents a barrel in backwardation, compared with 29 cents at the start of last week.