Texas storm 'icing on the cake' for rising oil prices: Mizuho's Yawger
After creating havoc in the power and natural gas markets, the next commodity sector causing concern in Texas is the state’s enormous oil refining industry, where installations are being forced offline by the big freeze.
The largest refineries in North America were shutting down Monday because of arctic conditions that have cut electricity, water and fuel supplies across Texas. More than 3 million barrels of daily oil-processing capacity has been idled in the wake of the record-setting cold, according to consultant Energy Aspects Ltd.
The shutdowns portend tightening supplies and higher prices for everything from gasoline to propane in coming days and weeks in cities across the country that rely on the U.S. Gulf Coast for fuels. The impact on fuel supplied by pipeline will likely spread far beyond Texas if the outages last more than a few days, considering that the oil industry had already cut back production during the pandemic. The Gulf Coast supplies more than three-fifths of the East Coast’s fuel.
Gasoline futures rose 3.5 per cent to US$1.75 a gallon on the New York Mercantile Exchange on Monday as traders watched developments in Texas:
- Saudi Aramco’s Motiva Enterprises LLC is halting operations at its Port Arthur, Texas, refinery, the nation’s largest, according to an email from the company.
- Marathon Petroleum Corp.’s Galveston Bay plant south of Houston was shut in response to the chill, Reuters reported.
- Exxon Mobil Corp. shut its massive Baytown refinery near Houston, as well as some units at its refinery in the town of Beaumont about 70 miles (112 kilometres) to the east, spokeswoman Sarah Nordin said. In addition to the cold, the Beaumont closure was also driven by a shortage of natural gas.
- Total SE ratcheted down crude processing to minimal levels and shut a key refining unit at its Port Arthur, Texas, plant, a person familiar with operations said. The refinery probably will shut completely within hours as temperatures drop, the person said.
Oil pipelines, electricity generators and wind farms have been paralyzed by the extreme weather conditions in the nation’s top crude-producing state. Refinery capacity is shrinking at a faster pace than oil production is declining due to the arctic weather, according to Energy Aspects.
“Disruptions to refining operations could be prolonged if the cold damages any equipment or if the power outages affecting Texas are not resolved quickly,” the consultant said in a note to clients.
--With assistance from Sheela Tobben and Javier Blas.