Brent oil rises toward $64 with power crisis hitting US supply

Brent oil edged higher in Asia after closing at the highest in almost 13 months as a deepening energy crisis in the US disrupted crude production and forced the shutdown of some of the nation’s biggest refineries.

Futures in London climbed toward $64 a barrel after rising 1.4 per cent on Monday. Freezing weather has crippled Texas’s power system and the blackouts are spreading to other states in the central US. More than a million barrels a day of oil output has been halted and pipelines have declared force majeure. Energy Aspects Ltd. estimates around 3 million barrels a day of processing capacity could be offline.

The combination of frigid temperatures and refinery closures has spurred a scramble for fuels and is likely to lead to higher American prices for everything from gasoline to propane. The US crisis is just the latest in a series of cold snaps in the northern hemisphere that have boosted oil consumption this year.

In Europe, 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 on Monday. There’s a chance, meanwhile, that Norwegian crude supply will be disrupted after talks to avert a refinery strike went past a deadline.

Saudi Arabia’s unilateral output cuts have helped the global crude benchmark rally more than 20 per cent this year as swollen global stockpiles are drawn down even as a stubbornly persistent coronavirus leads 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 on Sunday.

“Global supply is getting tighter with the US 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.

Prices

• Brent for April settlement rose 0.5 per cent to $63.63 a barrel on the ICE Futures Europe exchange at 11.30am in Singapore
  • It closed at $63.30 on Monday, the highest since January 21, 2020
• West Texas Intermediate for March delivery advanced 1.3 per cent from the close on Friday to $60.25 on the New York Mercantile Exchange
  • Prices didn’t settle Monday due to a holiday in the US.

The rebalancing has reshaped oil’s futures curve. Brent’s prompt timespread is 61 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. In China, the world’s biggest oil importer, travel over the Lunar New Year period is well below normal levels amid a resurgence of Covid-19 in parts of the country.