US freeze propels WTI, AGS bull run

  • Market: Crude oil, Freight
  • 02/19/21

Production shut-ins during freezing winter conditions in the US Gulf coast helped boost the value of Midland-quality West Texas Intermediate (WTI) crude in the region.

The Argus AGS Marker climbed $2.33/bl, or 3.9pc, week-on-week to $62.03/bl yesterday. The assessment peaked at $62.45/bl on 17 February, reflecting its highest volume-weighted average since the index was first launched 26 June.

The AGS Marker is a daily volume-weighted average of WTI deals transacted at nine pipeline and waterborne locations, normalized to Enterprise Products' Echo terminal in Houston, Texas.

US light sweet crude was already trending upward this month amid an economic recovery from the earlier stages of the Covid-19 pandemic and expectations of tighter Opec+ crude supplies near-term, as Saudi Arabia prepares to reduce production by a further 1mn b/d below its official target through March.

The AGS Marker has averaged $57.97/bl since the 26 January start to the March trade month, up by $5.35/bl, or more than 10pc, compared to an average $52.62/bl over the same period a month prior. The Midland-quality WTI index hit new record highs 11 out of 17 days so far this trade month, topping $60/bl for the first time on 10 February.

The bull run is now being exacerbated by storm systems that swept into Texas over the weekend, leading to widespread power outages that threatened prompt supply by knocking oil and gas production facilities and pipelines offline.

An estimated 2mn b/d of crude output was shut-in due to the severe winter conditions, and the Permian basin — where WTI is produced — is expected to decline its output to 660,000 b/d on the month.

The production curtailments led a number of pipeline operators to declare force majeure, including Plains All American, which said its 670,000 b/d Cactus 2 line and the 390,000 b/d Cactus pipeline would not be able to move contracted volumes from west Texas to Corpus Christi.

The cold weather and related power issues have also affected about 4.2mn b/d of refinery output, or 36pc of the refining capacity in the US Gulf coast, according to the US Department of Energy (DOE).

This could limit gains seen in regional crude prices or pressure prices lower again if production and midstream infrastructure recover faster than refinery demand.

The March Nymex WTI contract was $59.77/bl at 11:25am ET today, down 75¢/bl since yesterday's settle at $60.52/bl. The AGS index premium to Nymex stands at $1.53/bl so far today.


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