Frigid temperatures knocked out electricity across Texas and resulted in one of the largest U.S. oil production disruptions ever.
Shut-ins related to the winter storm have removed about 3 million barrels of daily oil production, or 27% of U.S. output, much of which comes from the oil-rich Permian Basin located in West Texas and Eastern New Mexico. Refining capabilities in Houston have also been knocked offline.
“It really is a perfect storm,” said Stephen Schork, founder and editor of the daily oil subscription newsletter The Schork Report. “We've had hurricanes, but this is an all-encompassing storm, the likes of which the North American or the U.S. refinery and oil market has never seen before.”
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The U.S. produced about 11 million barrels per day in January, according to the Energy Information Administration. Daily production had topped out around 13 million barrels in early 2020 before the COVID-19 pandemic.
Typically, with a hurricane, producers and refiners are given a week’s notice and have plenty of time to shut in their operations. But this arctic storm took the area by surprise, resulting in a “disorganized shut-in of these facilities,” Schork said.
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Occidental Petroleum Corp., the No. 2 oil producer in the Permian Basin, on Tuesday gave customers a force majeure notice, according to Bloomberg, alerting them deliveries would not be made due to production snafus caused by the frigid temperatures. A company spokesperson did not respond to FOX Business’ request for comment.
Other companies that shut in facilities include oil majors Chevron Corp. and ExxonMobil Corp.
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Chevron was forced to suspend production in the Permian Basin while ExxonMobil closed refineries in the Houston area. A number of other wells and refineries across the region were forced to temporarily shut-in.
Producers and refiners hope the disruptions won’t last for too long and Mother Nature appears to be on their side.
More snow and freezing temperatures are expected in the Permian Basin on Thursday before climbing into the mid-50s this weekend, according to the National Weather Service. Temperatures in Houston, meanwhile, are forecast to reach the mid-30s on Thursday and possibly hit 70 degrees by Wednesday.
The warmer temperatures are expected to thaw the power generators that have been knocked offline and in turn, help restore production.
"As power is restored to the oil patch and temperatures rise in the Permian Basin, oil production will slowly be restored to normal levels over the next week," Texas Railroad Commissioner Wayne Christian told FOX Business.
As production and refining capabilities return, traders and analysts will be keeping a close eye on West Texas Intermediate crude oil prices which on Wednesday touched a 13-month high of $61.26 per barrel before pulling back.
Closing at current levels or lower, from a trading standpoint, would signal “this run in crude oil prices, that we've seen for the last three weeks, is kind of running out of steam,” Schork said.