Cold spell in Texas causes pressure on supply and demand
Oil prices soared to their highest point since January 2020 as vaccine roll-outs provide hope, in addition to a cold spell in energy-rich Texas intensifying demand.
Brent crude oil was up as high $63.76 before coming back down to $63.25 at midday. An increase of its opening price of 1.3%.
West Texas Intermediate reached as high as $60.85, before settling at around $60.0, a rise of 1.9% from market opening.
While typical factors are at play, including vaccine roll-outs and news of pending stimulus checks, an Artic blast sweeping across Texas is also impacting oil markets.
After a week of uncharacteristically cold weather across large swathes of the US, temperatures have been forecast to reach all-time lows. Dallas is tipped to fall to -14C.
The Lone Star State’s grid operator warned of “tight grid conditions” ahead as electricity prices raced beyond $2,000 per megawatt-hour last week, way above last year’s average of $25.
North American natural gas analyst at S&P Global Platts, Luke Jackson, described the effect of the unusual weather conditions on both the supply and demand side.
“This is kind of like a perfect storm: You have record demand, and you’re losing gas production. It starts creating a competition for gas. There’s not enough gas to go around for everyone,” he said.
Hope remains for a stimulus package being passed shortly to aid the US economy.
Tamas Varga, oil analyst at London brokerage PVM Oil Associates, says Joe Biden’s stimulus package will be approved despite procedural delays.
“The long-awaited $1.9trn package has not been passed. As the latest US job data hints at struggling market the relief package cannot come soon enough for some,” said Varga.
“The stimulus will likely be approved in some shape or form.”