Texas freeze helps rival oil exporters like OPEC member Saudi Arabia

The shocking Texas winter storm that left millions without electricity and ended dozens of lives also froze a major local commodity: Lone Star state oil production, reducing about 4 million barrels a day of the production of the United States.

The consequence will be an increase in revenue and potentially an increase in exports among rival oil-producing nations, according to raw material experts.

Analysts estimate that the total volume of oil lost by the Texas production freeze is between 18 and 40 million barrels and closed about a fifth of U.S. refining capacity. And while temperatures are rising again and production is expected to recover mostly by the end of this week, the impact of the deficit on oil markets is already visible in the recent jump in crude oil prices.

International benchmark Brent crude has risen more than $ 6 a barrel since the storm began hitting Texan production facilities in mid-February. The US benchmark West Texas Intermediate has risen about $ 3 a barrel.

The development, while adding once again to Texas, in addition to the devastating damage and human suffering caused by the storm every ten years, translates into a global market for good help for other oil producers, such as those in the Middle East. East.

“The Texas storm is helping enormously Saudi and its partners as it accelerates the path to inventory normalization,” said Peter Sutherland, president of Houston-based energy investment firm Henrietta Resources LLC.

“Simultaneous declines in raw and refined products are a big tail wind toward spring,” he told CNBC. “It’s not just a positive sentiment; the roughly 40 million barrels lost due to the storm are helping to harden the market.”

Withdrawal of inventories continues with a trend that causes oil prices to rise steadily from their pandemic-induced historical lows almost a year ago. Brent crude has risen 30% to date, with Goldman Sachs predicting it could reach $ 75 later this year, a level not seen since the fall of 2018.

This could influence decision-making among OPEC members at their next meeting on 4 March. Although the organization had prioritized production cuts during much of the pandemic to keep land below oil prices, the most promising prospects for demand – and the gradual normalization of world supply – provide incentives for these producers to accelerate the speed at which they will increase their production.

“I certainly hope that Saudi Arabia will increase production given the current prices the market has seen,” said Yousef Alshammari, CEO of oil markets consulting firm CMarkets.

“The disruption of supply to Texas may cause OPEC + and Saudi Arabia to increase production to some extent and much of that increase in production will go to exports at higher prices.” OPEC + is the alliance of 13 OPEC states and 10 non-oil producing countries.

Voluntary production cuts of one million barrels a day in Saudi Arabia end in March and supply is expected to begin recovering in April. But this also means that the kingdom cannot take advantage of higher crude oil prices by increasing exports until the end of this period of reduced production.

Still, “all oil producers, including Saudi Arabia, enjoy the benefit” of the price increase, said Tamas Varga, a senior analyst at PVM Oil Associates. “U.S. crude exports will fall in the coming weeks and this provides support for international grades, again for oil producers.”

Some analysts do not see Texas ’loss of production as a consequence, even in the medium term.

The impact of a daily loss of 4 million barrels “is very small globally, as the world produces more than 80 million barrels a day of oil,” US supply manager Rene Santos told CNBC of S&P Global Platts Analytics.

“Freezes occur in the U.S. every year, but the magnitude we’ve experienced in recent days doesn’t happen very often,” he said. “Also, the freezes are short-lived.”

PVM Varga agrees. “The situation is likely to return to normal soon and in the medium term the impact of the Texas freeze will be negligible, I think,” he said.

But long-term market dynamics remain in favor of OPEC members, not because of the Texas storm, but thanks to last year’s devastating oil production keys across the U.S. when prices crashed. of crude oil. The high cost of slate production in the United States meant that most producers could not survive the impact of the blockades. The U.S. platform count is still 50% below 2019 levels, despite rising prices.

“US oil production is not expected to recover to 2019 levels, which will leave OPEC + with much more influence in the markets in 2021,” Alshammari said.

In the long run, the impact of a weather shock like this one “really depends on how Texas faces these crises in the future,” he added. “I expect them to be more resilient to such adverse weather conditions in terms of bid supply, but I certainly expect Saudi Arabia to have a larger market share in the long run due to the loss of quota of shale production market “.