The cold wave hit southern cities in the United States, crude oil production was affected, oil prices rose, OPEC + disagreed on whether to continue to reduce production significantly, and the OPEC + meeting will be held in early March, there is a certain degree of uncertainty on the supply side. The cold wave in the United States caused the closure of refinery equipment and restricted vaccine distribution, which also affected the demand for crude oil. Considering that the cold wave has a relatively short-term impact on the supply and demand of crude oil and has a certain offset, the crude oil market still maintains a tight balance in the early stage.

There are some uncertainties in the supply side

Affected by the cold wave, the U.S. crude oil supply fell sharply, pushing up the early oil price. Due to the cold wave hitting southern cities in the United States, Texas was forced to turn off power for the first time in 10 years. The energy market fell into chaos, and all natural gas, nuclear, wind and coal-fired power plants in Texas went offline.

Western oil company of the United States suspended crude oil production in the Permian Basin; chevron closed crude oil production in the Permian Basin. The Permian crude oil production in the United States decreased by 80%, and the crude oil production in the United States decreased by more than 40%, reaching 4 million barrels / day. Recently, the temperature has gradually warmed up. The state electric power reliability Commission (ercot) said that there is enough power generation to restore the normal operation of the power grid, and it will cancel the level I energy alarm. Therefore, the shutdown of crude oil in the United States is relatively short and the impact is relatively limited. As the temperature rises and the power supply returns to normal, the crude oil supply in the United States will gradually return to the previous level. In addition, the United States rejoins the Paris Agreement, and the “Green New Deal” advocated by Biden during his election campaign is gradually being implemented, including stopping federal land leasing and oil and gas drilling, reducing fossil fuel subsidies and other measures. The recovery of shale oil production in the United States is expected to be relatively slow.

Oil price goes up, OPEC + has insufficient power to reduce production, so we should pay attention to the meeting. In view of the fact that the current oil price returns to the fluctuation range at the end of 2019 and the beginning of 2020, and Saudi Arabia voluntarily reduces production by 1 million barrels per day from February to March, if the oil price goes up, Saudi Arabia can not rule out the possibility of terminating unilateral large-scale production reduction. In addition, at the beginning of March, OPEC + will hold a meeting to discuss the adjustment of crude oil production in April, and the upward trend of oil price leads to the weak power of OPEC + to reduce production. Iran is not a member of the OPEC + Joint Ministerial Supervisory Committee (jmmc), but will attend the meeting on March 3. If Iran’s crude oil exports return to the market, OPEC + will readjust the quota allocation. Otherwise, Iran’s production increase will greatly offset OPEC +’s production reduction effect. Iran’s return to the crude oil market also involves the US’s return to the Iran nuclear agreement. It is expected that the sanctions will not be lifted in the short term. Combined with the decline of crude oil production in Libya and Nigeria due to domestic problems, OPEC + is expected to relax production reduction in April, and the specific increase amount needs to be further tracked.

Demand for crude oil is recovering

The cold wave in the United States also affects the demand for oil refining. After the cold wave, the demand for crude oil will gradually recover. Affected by the cold wave, large US refiner motiva closed Port Arthur plant, Chevron Phillips Chemical Company closed equipment, Marathon Oil Company’s Galveston Bay refinery closed, total’s Port Arthur refinery closed coking unit and crude oil distillation unit (CDU), Valero energy closed Port Arthur refinery, ExxonMobil closed Baytown and Beaumont refinery Facilities: Valero Memphis refinery in Tennessee, Chevron, Pasadena and Lyondell refinery in Houston were closed.

After the cold wave, the Oilpatch oil service in Texas resumed operation, Valero energy restarted the Corpuschristi refinery in Texas, and ExxonMobil restarted the Beaumont refinery in Texas. However, most of the affected refineries need two and a half to three weeks to resume operation, and some refineries may advance the spring inspection of about 500000 barrels per day. In addition, affected by the cold wave, vaccine distribution is limited. With the end of the cold wave, vaccine continues to be promoted and popularized, travel increases, and crude oil demand gradually recovers.

Crude oil continues to go to the reservoir

The direction of crude oil destocking remains unchanged. In the week ending February 12, US commercial crude oil inventories were 461.757 million barrels, down 7.257 million barrels on a month on month basis, returning to the five-year average; Cushing crude oil inventories were 45.016 million barrels, down 3.028 million barrels on a month on month basis. Affected by the cold wave, on the one hand, the supply decreased and the inventory declined; on the other hand, the refinery shut down the equipment, making the crude oil accumulation. With the end of the cold wave, if the supply side does not change much, the crude oil market will continue to maintain a tight balance, and the crude oil will continue to be destocked.

The US crude oil supply will gradually recover after the cold wave recedes. Whether Saudi Arabia’s unilateral production reduction will be terminated or not, and whether OPEC + will significantly increase production at the March meeting, all make the crude oil supply uncertain. Moreover, the cold wave not only affected the supply, but also led to the closure of refinery equipment, restricted vaccine distribution and the decline of crude oil demand. At present, supply and demand are still in a tight balance, and crude oil will continue to go to the reservoir, paying attention to the results of the OPEC + meeting.