Investing.com - The one-way move in oil prices snapped on Thursday as some cashed in on this week’s “freeze” trade that sent crude markets higher than they might have otherwise gone.
New York-traded West Texas Intermediate crude settled down 1%, or 62 cents, at $60.52 per barrel as players took profit on its run to 13-month highs of $62.27 after the Arctic freeze that crippled part of the oil production in Texas, the heartland of U.S. energy.
London-traded Brent, the global benchmark for crude, settled down 0.6%, or 41 cents, at $63.93, after briefly breaking above $65 — its highest since January 2020.
After an unseasonably warm start to the 2020/21 winter, a hail of snow storms have descended upon central and eastern United States in recent weeks. This has slowed or, in some cases, shut altogether energy production in some places, particularly in Texas, where the freeze was so severe this week that oil and gas just couldn't flow like normal.
Analysts at ANZ Bank and Citigroup (NYSE:C) estimate that at least 2 million barrels barrels per day of US shale oil production has been curtailed by the Texas storm.
Citigroup also expects a cumulative production loss of around 16 million barrels through early March.
Typically known for its sweltering weather most of the year, Texas now looks more like a white blanket after this week’s storm in the state known temperatures of between 60°F (15.6°C) and 70°F (21.1°C).
At least 500,000 homes in Texas had no power on Thursday morning after as many 3.1 million were impacted a day earlier by the worst snowstorm in 30 years to hit the state.
The Texas storm has added to this year’s oil rally, sparked and sustained by multiple factors.
The run-up began with the November breakthrough in vaccines for the Covid-19. That was followed by OPEC leader Saudi Arabia’s announcement of deeper production cuts in January. From then, commodity-index linked buying of oil, sizable weekly drops in U.S. crude stockpiles and hopes for economic stimulus from the Biden administration spurred gains.
Thursday’s profit-taking in oil came after the U.S. Energy Information Administration reported that crude inventories declined by 7.258 million barrels last week, compared with analysts' expectations for a draw of 2.43 million barrels.
Gasoline inventories increased 672,000 barrels last week the EIA said, compared with expectations for a build of 1.379 million barrels.
But more importantly, distillate stockpiles, which include diesel and heating oil, fell 3.42 million barrels in the week against expectations for a decline of 1.57 million barrels, the EIA data showed.
“It’s not surprising at all to see this sort of crude draws given the demand for heating oil from the deep-freeze we’re having now, and the distressed state of oil production we’re in," said Investing.com analyst Barani Krishnan. "Texas is basically a mess, and we’re likely to see these sort of gargantuan draws for at least a couple more weeks."