Pump monkeys operate in front of a drilling rig in an oil field in Midland, Texas.
Nick Oxford | Reuters
Energy prices jumped on Tuesday as a cold spell in the South increased demand for fuel and, at the same time, hampered production.
More than 3.8 million people were without power across Texas early Tuesday morning, according to poweroutage.us, as the grid was unable to keep up with rising demand, forcing utilities to implement continuous blackouts in some cases.
“Most of the heating needs are met by electric baseboards for heat pumps in the southern region,” said John Kilduff, founding partner at Again Capital. “Demand for electricity over the weekend rivaled peak heat wave levels in the summer.”
Henry Hub natural gas futures jumped 6.7% to trade at $ 3.106 per million British thermal units. Gasoline futures advanced more than 4%.
“The storm that hit the Midwest and the Northeast was much worse than expected,” said Jeff Kilburg, CEO of KKM Financial. “Frigid temps and missing speculators are dramatically raising future prices.”
The storm wiped out about 30 gigawatts of generating capacity, according to estimates by ClearView Energy Partners, just as consumers increased the demand to heat their homes. In the end, there was simply not enough supply, forcing energy companies to turn to the open market to buy electricity.
“The weather is severe enough to restrict supply when demand is close to the highest levels ever. Certain regional spot prices for natural gas have skyrocketed 10 to 100 times in a matter of days,” noted RBC analysts.
West Texas Intermediate oil futures, the benchmark for U.S. oil, exceeded $ 60 for the first time in more than a year on Monday, although the contract was trading below that level on Tuesday morning -market. Brent crude, the international benchmark for crude, dropped 21 cents to $ 63.09 a barrel.
Generating units on all types of fuel have been forced to shut down – including some wind power – and freezing the pipelines is preventing the flow of natural gas and crude oil. Texas is the largest producer of crude oil and natural gas in the United States and has 30 refineries, according to data from the US Energy Information Administration.
Andy Lipow, president of Lipow Oil Associates, based in Texas, said that of the 2.6 million people in Texas without power on Monday, only 70,000 were affected by transmission lines or felled trees. He estimates that one million barrels per day of crude oil production has been taken out of the air, about 40% to 50% of natural gas production in the Permian Basin has been shut down and about 50% of wind power production has been stopped thanks to to the frozen slides.
The energy sector gained more than 2% during the pre-market negotiations on Tuesday. Occidental Petroleum rose 6% in the pre-market, while Exxon, Devon Energy, Halliburton and ConocoPhillips rose more than 2%.
On Sunday, President Joe Biden declared a state of emergency in Texas when the storm brought snow and ice from Arkansas to Indiana. The storm is forecast to move from the Ohio Valley, through Pennsylvania and up to Maine, according to the National Weather Service.