Oil futures ended mixed on Tuesday, with U.S. prices down a few pennies and global benchmark Brent crude eking out a fresh 13-month high.
Traders eyed the pace of recovery in Texas energy output in the wake of last week’s winter storms, as well as speculation surrounding a decision on production by major oil producers next week.
“The near-term focus is on getting operations in Texas back to normal, after extreme winter conditions caused a temporary drop in U.S. crude production of around 40%,” said Robbie Fraser, manager of global research and analytics at Schneider Electric. “While most production should be able to make a quick return, refineries face a more challenging path, with potential damage to infrastructure complicating a complete recovery.”
Still, “downside risk further out remains pronounced with millions of barrels of OPEC+ and potential U.S. shale production awaiting a return,” he said in a note. The Organization of the Petroleum Exporting Countries and their allies, together known as OPEC+, will hold meetings next week and are expected to make a decision on oil production levels.
However, “for now, the market remains focused on a stronger-than-expected global demand recovery,” said Fraser.
On its first full session as a front-month contract, April West Texas Intermediate crude
fell 3 cents, or nearly 0.1%, to settle at $61.67 a barrel on the New York Mercantile Exchange after trading as high as $63.
April Brent crude
the global benchmark, rose 13 cents, or 0.2%, to $65.37 a barrel on ICE Futures Europe, the highest finish since January 2020. Most-active May Brent crude
which will become the front-month contract after Friday’s settlement, rose 12 cents, or 0.2%, at $64.48 a barrel.
There is a “growing view that the oil market is looking increasingly tight over the remainder of the year, with a number of analysts revising higher their price forecasts over the last week, including us,” said Warren Patterson, head of commodities strategy at ING, in a note.
Goldman Sachs on Monday lifted its forecasts, calling for Brent to hit $75 a barrel by the end of the year. ING last week raised its 2021 forecast for the global benchmark, raising its outlook to $65 a barrel versus its previous forecast of $60 a barrel.
In a note dated Monday, analysts at BofA Securities said they have lifted their average Brent crude forecast to $60 this year and that prices may temporarily spike to $70 in the second quarter. In June, the analysts expected an average $50 price for Brent crude in 2021, with a possible spike to $60 in the second quarter.
Meanwhile, “the situation in Texas, which is home to many oil production and processing facilities, is worrying: temperatures below zero and the power and gas supply cuts that this has necessitated have paralyzed virtually all refineries in Texas, which have a daily production of up to 5.1 million barrels and account for more than a quarter of total U.S. refinery capacity,” said Eugen Weinberg, commodity analyst at Commerzbank, in a note.
“So far, less than half has gone back into operation, which will likely weigh on supply both within and outside Texas. It will probably take even longer for Texan oil production to return to normal,” he said.
Still, Commerzbank contends optimism is overly upbeat and sees room for prices to turn lower after the brisk run-up.
“For one thing, we are still somewhat skeptical about demand, and for another the production discipline shown by OPEC+ is likely to falter in view of the high prices,” Weinberg said. “We also see a good chance of Iranian oil exports returning to the market if agreement can be reached with the U.S. and sanctions are lifted.”
The Energy Information Administration will issue its weekly data on U.S. petroleum supplies on Wednesday. On average, analysts polled by S&P Global Platts forecast a decline of 4.8 million barrels in crude stockpiles for the week ended Feb. 19. They also expect supply declines of 2.8 million barrels for gasoline and 3.5 million barrels for distillates.
March natural gas
which expires at the end of Wednesday’s session, settled at $2.879 per million British thermal units, down 2.5%.