Oil prices declined after climbing to the highest in more
than a year. Prices fell for a second day on Friday, retreating further from
recent highs, as Texas energy companies began preparations to restart oil and
gas fields shuttered by freezing weather and power outages.
US energy firms
during this past week cut the number of oil rigs operating for the first time
since November 2020.
Brent crude futures ended the session down 1.6% at US$62.91/barrel,
while US benchmark, West Texas Intermediate (WTI) fell 2.1%, to settle at US$59.24.
For the week, Brent gained about 0.5% while WTI fell about 0.7%. This week,
both benchmarks had climbed to the highest in more than a year.
Price pullback thus far appears corrective and is slight
within the context of this month’s major upside price acceleration. Unusually
cold weather in Texas and the Plains states curtailed up to 4 million barrels
per day (bpd) of crude production and 21 billion cubic feet of natural gas, analysts
estimated.
Texas refiners halted about a fifth of the nation’s oil
processing amid power outages and severe cold. Companies were expected to
prepare for production restarts on Friday as electric power and water services
slowly resume.
While much of the selling relates to a gradual resumption of
power in the Gulf coast region ahead of a significant temperature warm-up, the
magnitude of this week’s loss of supply may require further discounting given
much uncertainty regarding the extent and possible duration of lost output.
A point worth noting is that oil prices fell despite a
surprise drop in the US crude stockpiles, before the big freeze hit.
Inventories fell 7.3 million barrels to 461.8 million barrels, their lowest
since March last year, the Energy Information Administration reported on
Thursday.
Vaccines and the impressive rollouts have delivered strong
gains, as have the efforts of OPEC plus - Saudi Arabia, in particular - and the
big freeze in Texas, which gave oil prices one final kick during the week. With
so many bullish factors now priced in, it seems some of these positions being
unwound.
The United States on Thursday said it was ready to talk to
Iran about returning to a 2015 agreement that aimed at preventing Tehran from
acquiring nuclear weapons. Still, analysts did not expect near-term reversal of
sanctions on Iran that were imposed by Trump administration.
This breakthrough increases the probability of Iran
returning to the oil market soon, although there is much to be discussed and a new
deal may not be a carbon-copy of the 2015 nuclear deal.
Lately, oil prices climbed on hopes that the US stimulus
package will boost the economy and fuel demand, as supplies tighten due largely
to output cuts by top producing countries. The rally was also in anticipation
of the US President Joe Biden meeting with a bipartisan group of mayors and
governors as he keeps pushing for approval of a US$1.9 trillion coronavirus
relief plan to bolster economic growth and help millions of unemployed workers.
Oil prices have risen due to production cuts from the
Organization of the Petroleum Exporting Countries (OPEC) and allied producers
in the group OPEC+. Oil prices remained buoyed by further signs that crude
stocks, particularly in the US were falling. Analysts anticipate that
inventories will fall further later this year as transport fuel demand revives
in tandem with the easing of virus-related restrictions on travel.
OPEC this week ratcheted down expectations for global oil
demand to recover in 2021, trimming its forecast to 5.79 million bpd. The
International Energy Agency (IEA) said oil supply was still outstripping global
demand, though COVID-19 vaccines are expected to support a demand recovery.
The (IEA) report paints a more pessimistic picture than
market participants have presumably been envisaging given the current high
prices. Demand data from the world’s biggest oil importer also paints a bleak
picture.
The number of people who travelled in China ahead of Lunar
New Year holidays plummeted by 70% from two years ago as coronavirus
restrictions curbed the world’s largest annual domestic migration, official
data showed.
The US drillers this week added oil and natural gas rigs for
a 12th week in a row, the longest streak of additions since June 2017.
According to secondary sources, OPEC crude oil production
averaged 25.50 million bpd in January 2021, up 180,000 bpd from December 2020,
with output rising in top producer Saudi Arabia, as well as in Venezuela and
Iran, which are exempt from the OPEC+ cuts.