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Oil prices fell by as much as 2% in early trading on Friday, prompting the takeover to fall for refineries after the big freeze in the south of the US began to resume, creating a gap in demand while OPEC +’s stocks are expected to rise.
“The market was ripe for a correction and signs of the power and overall energy situation beginning to normalize in Texas provided the necessary trigger,” said Vandana Hari, energy analyst at Vanda Insights.
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US West Texas (WTI) crude futures fell $ 1.14, or 1.9%, to $ 59.38 a barrel at 0421 GMT, after falling 1% on Thursday.
Brent crude futures fell $ 1.03, or 1.6%, to $ 62.90 a barrel, after falling 0.6% on Thursday.
Both benchmark contracts rose to 13-month highs on Thursday, driven by the historic freezing point in the southern U.S. states. While analysts estimate that the extreme cold has closed up to a third of U.S. crude production, attention has now been drawn to the impact on refineries.
The lack of demand from Texan refineries is likely to lead to an increase in crude supplies in the coming weeks, although about 3.5 million barrels per day (bpd) of U.S. oil production have been closed, ANZ Research said in a note.
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Citi analysts said in a statement that some U.S. refineries would bring forward about 500,000 bpd of maintenance work that is normally planned for spring next month, before the summer season.
The WTI price curve on the leading month fell in a shallow contango to minus 4 cents on Friday, a market structure in which barrels near the month are cheaper than in later months, implying the current oversupply.
“The small contango … is likely to indicate that market expectations for U.S. crude production and inventory (including imports) will recover faster than the refining capacity in Texas is closed by the freezer,” Hari said.
U.S. crude stocks fell more than expected in the week to February 12, before freezing, stockpiling 7.3 million barrels to 461.8 million barrels, the lowest since March, the Energy Information Administration reported Thursday.
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Attention has also been drawn to a looming increase in crude oil supplies from the Organization of Petroleum Exporting Countries and Allies, known as OPEC +.
OPEC + sources told Reuters that the group’s producers are likely to ease fighting supply after April, given the recovery in prices.
The United States said on Thursday it was ready to talk to Iran about both countries returning to a 2015 agreement aimed at preventing Tehran from acquiring nuclear weapons.
While the thawing ratios could raise the prospect of reversing the sanctions imposed by Trump, analysts did not expect Iranian oil sanctions to be lifted soon.
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“It’s going to be a long road,” Hari said, referring to the talks between the United States and Iran.
(Reporting by Roslan Khasawneh in Singapore and Sonali Paul in Melbourne; Edited by Tom Hogue and Simon Cameron-Moore)