Oil Gains 4% on Texas Aftermath, Continued Drop In Covid Numbers

by Ship & Bunker News Team
Monday February 22, 2021

A slow resumption of U.S. crude production following frigid weather conditions in Texas and the Midwest was said to be the main driver of oil prices on Monday gaining nearly 4 percent; the gains were also attributed to expectations that global producers would continue to curtail output.

After it was learned that it might take American shale producers at least two weeks to fully resume their normal rate of production, Brent settled at $65.24 per barrel, rising $2.33, or 3.7 percent, while West Texas Intermediate settled at $61.49 per barrel, up $2.25, or 3.8 percent.

The crude rally, while problematic for some people, is proving beneficial to companies such as Marathom Oil Corp., which on Monday posted a smaller fourth-quarter loss (of $98 million compared with a Q3 2020 loss of $219 million) due to the recovery in commodity prices.

Jim Ritterbusch, president of Ritterbusch and Associates, said of Monday's price gains, "We believe that both the crude and gasoline markets have yet to fully discount last week's sizable reduction in Gulf coast crude production as well as a major decline in refinery activity."

However, John Kemp, commodities analyst at Reuters, warned, "The probability of further price rises as a result of falling global oil inventories and a delayed production increase from OPEC+ is roughly offset by risks from profit-taking on the large number of existing long positions and an acceleration in U.S. shale drilling."

Meanwhile, expectations were building towards the Organization of the Petroleum Exporting Countries (OPEC) and its allies would keep any increase in output at extremely modest levels when they meet on March 4.

Still, given the plunging Covid-19 rates globally due to the vaccines and energy producers eager to regain some market footing, it was commonly thought that an easing of curbs would still happen to a degree: "Saudi Arabia is eager to pursue yet higher prices in order to cover its social break-even expenses at around $80 a barrel while Russia is strongly focused on unwinding current cuts and getting back to normal production," said Bjarne Schieldrop, chief commodity analyst at SEB.

For its part, Trafigura Group points out that underscoring this market support and especially the slow return to normalcy is the oil futures curve, which has also markedly firmed where nearer-dated contracts are more expensive than later ones–a bullish backwardation that that Ben Luckock, co-head of oil trading, believes is likely "here to stay."

Luckock added, "We have a strong market going into summer: we're certainly very bullish most of the world in getting out of lockdowns this summer, so this market has been given an impetus given the events in Texas."