Brent oil held gains in Asia after closing at the highest level in more than a year as electricity blackouts caused by freezing weather in Texas disrupted flows from the biggest U.S. shale patch.
Futures in London traded above $63 a barrel after rising 1.4% Monday. The power cuts have spread to central parts of the U.S. in a deepening crisis that’s already crippled the Texas electrical grid. Some of North America’s biggest refineries were shut down Monday, with more than 3 million barrels of daily oil-processing capacity idled, according to consultant Energy Aspects Ltd.
It’s the latest in a series of cold snaps that have given a larger-than-expected boost to oil consumption this year. The North Sea oil market, which helps price more than two-thirds of the world’s crude, also saw its biggest spate of bullish activity in years. Meanwhile, there’s a chance that Norwegian supply will be disrupted with talks to avert a refinery strike going past a deadline.
The global crude benchmark has climbed 22% so far this year after Saudi Arabia announced deep output cuts, helping swollen global stockpiles to normalize even as the rapid spread of Covid-19 led to more lockdowns. The global oil market is “balanced”, with prices reflecting the current state of play, Russia’s Deputy Prime Minister Alexander Novak said Sunday.
“Global supply is getting tighter with the U.S. cold snap here to stay for now, and there are also expectations for demand to improve,” said Will Sungchil Yun, a senior commodities analyst at VI Investment Corp. in Seoul. West Texas Intermediate oil at $65 a barrel “doesn’t look impossible anymore,” he said.
The rebalancing has reshaped oil’s futures curve. Brent’s prompt timespread is 59 cents a barrel in backwardation — a bullish market structure where near-dated prices are more expensive than later-dated ones — compared with a 7-cent contango at the beginning of the year.
Still, concerns remain over the sustainability of crude’s rally. Both Brent and WTI’s 14-day Relative Strength Indexes remain well above 70 in a sign that prices could be due for a pullback. The threat of new virus strains around the world and a resurgence that’s hampering travel in China may cap what’s been a dramatic recovery in fuel consumption. The International Energy Agency cut its demand forecast for 2021 last week and described the market as fragile.
– Bloomberg