Oil Prices Decline As US Refinery Outages Linger

Oil Prices Decline As US Refinery Outages Linger
Oil fell the most in nearly a month.

(Bloomberg) -- Oil fell the most in nearly a month alongside a broader market selloff with the ongoing energy crisis in the U.S. likely keeping refineries shut for another week.

Futures in New York declined 1% in a choppy trading session on Thursday. While U.S. oil output has plunged nearly 40% amid the unprecedented cold blast in parts of the country, crude demand from refineries is expected to remain weak as Gulf Coast fuel-making plants make repairs and take time to restart following operating issues caused by the freezing temperatures. Further pressuring prices, U.S. equities weakened after initial jobless claims hit a four-week high.

“Right now, we have both refining capacity and oil production down at the same time, so there aren’t particular supply stresses and the market is reflecting that,” said Bart Melek, head of commodity strategy at TD Securities. Meanwhile, despite crude stockpiles declining, there’s a sense that “oil’s rally may be a little overdone.”

Technical indicators also show crude is due for a pullback. The 14-day Relative Strength Indexes for both the U.S. and global crude benchmarks remain above 70 in a sign the commodity is overbought. West Texas Intermediate futures are up about 25% this year as Saudi Arabia’s deep output cuts and an improving demand outlook encourage investors.

Still, capping further losses, U.S. crude stockpiles tumbled more than 7 million barrels last week to the lowest in almost a year, according to an Energy Information Administration report on Thursday. The data also showed supplies at the nation’s largest storage hub at Cushing, Oklahoma, fell by the most in a month, while crude output ticked lower.

Traders are assessing the limited available U.S. output with another freeze expected in Texas overnight. Estimates for how long the U.S. outages may last have risen in recent days as analysts try to figure out the timespan involved in thawing out infrastructure.

The supply shock is aiding an already frothy global oil market and is starting to alter energy flows, with traders snapping up ocean-going tankers to haul millions of barrels of European diesel to the U.S.


  • West Texas Intermediate for March delivery fell 62 cents to settle at $60.52 a barrel
  • Brent for April settlement slid 41 cents to end the session at $63.93 a barrel
    • The global crude benchmark earlier jumped above $65, a level it hasn’t reached since Jan. 21, 2020

The inventory declines in the U.S. are “supportive of the general thesis that as the recovery takes shape, refiners are going to uptick and demand is going to increase,” said Quinn Kiley, a portfolio manager at Tortoise, a firm that manages roughly $8 billion in energy-related assets. “There’s a stated goal to reduce capital spending, so that means supply’s going to be weak. That’s a positive setup for prices all around the globe.”

The EIA data also showed distillate inventories fell by more than 3 million barrels last week, while gasoline supplies rose.

Meanwhile, 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. Brent’s prompt timespread moved further into a bullish backwardation structure this week, reflecting the tightening global supply backdrop, with the nearest contract trading at a nearly 80-cent premium to the following month.

More oil-market news

  • Prices for crude produced in West Texas held at the highest since early January after rising as a cold blast led to widespread production shut-ins across the state.
  • Iraq’s crude oil exports jumped in the first half of February even after OPEC’s second-biggest producer pledged to cut production this month.
  • Oil markets have entered a strong cycle, with a tightening of supply and demand that hasn’t been seen on a protracted basis for more than a decade, RBC said.
  • Marine fuel prices in Asia continue to climb amid tightening supplies and a robust rebound in oil, adding to the strain on crude shippers grappling with loss-making routes and facing lower near-term bookings.

--With assistance from Grant Smith.

© 2021 Bloomberg L.P.


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