Texas Freeze Helps Competitive Oil Exporters Like Saudi Arabia, OPEC Members

The shock winter storm in Texas that left millions of people without power and took dozens of lives also froze an important local commodity: Lone Star State oil production, which tore down about 4 million barrels a day of U.S. production.

The result will be a boost in revenue and possibly increased exports among competing oil-producing countries, commodity products say.

Analysts estimate that the total volume of oil lost due to Texas production froze between 18 million and 40 million barrels, and about a fifth of U.S. refining capacity was closed. And while the temperature is moving up again and production is expected to recover mostly by the end of this week, the impact of the deficit on the oil markets is already visible in the recent jump in crude prices.

The international benchmark for Brent crude oil has risen more than $ 6 a barrel since the storm hit production facilities in Texan in mid-February. U.S. benchmark West Texas Intermediate rose about $ 3 a barrel.

While the development adds to Texas once again in addition to the devastating damage and human suffering caused by the once-in-a-decade storm, it means that the world market is likely to be a boon to other oil producers, such as those in the Middle East. East.

“The Texas storm is helping Saudi Arabia and its partners tremendously as it accelerates the path to stock normalization,” based Peter Sutherland, president of the Henri Investment Resources firm, Houston.

“Simultaneous damage to both raw and refined products is a major headwind in the spring,” he told CNBC. ‘It’s not just a positive sentiment; the approximately 40 million barrels lost due to the storm are helping to sharpen the market. ‘

Inventory collection continues with a trend of oil prices rising steadily from their historic pandemic-induced lows almost a year ago. Brent crude has risen 30% so far, and Goldman Sachs predicts it could reach $ 75 by the end of this year, a level not seen since the fall of 2018.

This could affect the decision-making among OPEC members at their forthcoming meeting on 4 March. While the organization has anticipated production cuts during much of the pandemic to curb oil prices, the more promising prospects for demand – and the gradual normalization of world supply – offer demand. incentive for these producers to increase the production rate.

“I would definitely expect Saudi Arabia to increase production, given the current prices the market has seen,” said Yousef Alshammari, CEO of oil market advisory firm CMarkets.

“The disruption of supply in Texas could lead to OPEC + and Saudi Arabia increasing production to some extent, and a large portion of the production increase will go to exports at higher prices.” OPEC + is the loose alliance of 13 OPEC states and ten non-OPEC oil producing countries.

Saudi Arabia’s voluntary production cuts of 1 million barrels per day end in March and are expected to begin gradually in April to bring back supply. But it also means that the kingdom cannot take advantage of higher crude prices by increasing exports until the end of the production period.

Tamas Varga, senior analyst at PVM Oil Associates, continues to say that “every oil producer, including Saudi Arabia, benefits from it”. “U.S. crude oil exports will decline in the coming weeks, and it provides support for international grades – which also support oil producers.”

Some analysts do not consider the production loss in Texas to be consequential, not even in the medium term.

The impact of a daily loss of 4 million barrels ‘is very small worldwide because the world produces more than 80 million barrels of oil per day,’ Rene Santos, manager of North America at S&P Global Platts Analytics, told CNBC.

“Freezing occurs every year in the US, but the extent we have experienced over the past few days does not happen very often,” he said. “On top of that, freezing shortages are short-lived.”

PVG’s Varga agrees. “The situation is likely to normalize soon and in the medium term, the effects of the freeze in Texas will be negligible, I think,” he said.

But the long-term market dynamics are still in favor of OPEC members – not because of the Texas storm, but thanks to the devastating oil production shutdowns in the US last year when crude prices plummeted. The high cost of American shale production meant that most producers could not survive the impact of the barrier. The US counter is still 50% lower than 2019, despite rising prices.

“The expected US oil production is not expected to recover until 2019 levels, which will leave OPEC + with much more influence on the markets in 2021,” Alshammari said.

Over the long term, the consequences of a weather shock like this month ‘really depend on how Texas is going to deal with such crises in the future,’ he added. “I expect them to be more resilient to such unfavorable weather conditions on the supply side, yet I expect Saudi Arabia to have a larger market share in the long run due to the lost market share of shale production.”