By Myra P. Saefong and Barbara Kollmeyer
Natural-gas futures mark highest finish since November
Natural-gas futures led an across-the-board surge in energy prices on Tuesday, as swaths of the U.S. struggled with subzero temperatures and rolling blackouts hit several states.
"Elevated, weather-driven demand across much of the nation" supported the rally for natural gas, said Tyler Richey, co-editor at Sevens Report Research. "Supply has also become an issue in some locations as the storage infrastructure has literally frozen, preventing physical delivery to various consumers," including utility companies, which contributed to some regional power issues.
Read:U.S. deep freeze prompts natural-gas rally, and uranium prices melt up (link)
March natural gas climbed 22 cents, or nearly 7.5% to settle at $3.129 per million British thermal units, with front-month contract prices logging their highest settlement since early November of last year, according to Dow Jones Market Data.
The surge in prices came as the Southwest Power Pool, a group of utilities covering 14 states, ordered utilities to start rolling blackouts (link) to cope with an exhausted supply of reserve energy. That came as a winter storm swept from the Ohio Valley to the Gulf Coast of the U.S., bringing freezing temperatures as far south as San Antonio.
Extreme winter weather forced wind power generators in Texas offline and caused spikes in electricity prices. The Electric Reliability Council of Texas estimated two million people were without power on Monday evening, The Wall Street Journal reported (link). President Joe Biden declared a state of emergency in Texas, at the request of Gov. Greg Abbott, paving the way for emergency aid to reach the state. The storm has killed two people so far in Texas.
"Since many well sites are frozen, there is little gas to feed pipelines," said Manish Raj, chief financial officer at Velandera Energy. "Any available gas is being prioritized for heating rather than for electricity generation, further exacerbating the shortage for electric generation in Texas."
"For natural-gas producers, it is a 'theoretical windfall', but practically just a missed opportunity," said Raj. "Even though prices have skyrocketed beyond anybody's belief, little gas is actually available to trade at these prices."
The rare storm hitting Texas was also raising concerns over oil and oil product supply disruptions amid reports of some refineries shutting down (link) due to extreme cold.
The deep freeze also triggered a sharp gain in oil-futures prices. Regular trading in WTI, the U.S. benchmark, was shut Monday due to the Presidents Day holiday.
March West Texas Intermediate crude rose 58 cents, or 1%, to settle at $60.05 a barrel -- with front-month prices above $60 for the first time since January 2020.
April Brent crude edged up by a nickel, or nearly 0.1%, to $63.35 a barrel to eke out a finish at a roughly 13-month high.
Tensions between the Saudis and Iran-backed Houthis rebels contributed to gains in oil prices late last week (link), but the oil rally Tuesday "seems to be more of a function of the weather in the U.S. right now," said Richey, "with frigid temperatures causing production shut-ins, a drop in refinery runs, and even the closure of the Houston Ship Channel."
Prices for petroleum products traded on Nymex rose sharply. March gasoline climbed nearly 4.8% to $1.7729 a gallon, the highest front-month finish since August 2019. March heating oil added 2.4% to $1.8144 a gallon.
The freeze hasn't only affected the power supply and brought production of more than one million barrels a day of crude production to a standstill, but has also hindered pipeline operations and other means of transport, as well as Texas Gulf Coast refineries with a capacity of more than 3 million barrels a day, said Eugen Weinberg, commodity analyst at Commerzbank, in a note.
"All the same, we do not see WTI prices of $60 per barrel as being sustainable in the medium term. After all, at such prices U.S. oil production is likely to recover much more dynamically than expected and delay the reduction of surplus inventories," Weinberg said.
"Because the Texas boost in energy demand, and up to a million-barrel-drop in daily supply are temporary, levels above $60 look attractive to top-sellers," cautioned Ipek Ozkardeskaya, senior analyst at Swissquote, in a note to clients. "A downside correction could easily kick in and pull prices below the $55 per barrel, but should not damage the medium-term positive trend in oil prices."
Meanwhile, weekly data on U.S. petroleum supplies from the Energy Information Administration will be delayed by a day this week to Thursday because of the holiday-shortened week.
-Myra P. Saefong; 415-439-6400; AskNewswires@dowjones.com
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02-16-21 1531ETCopyright (c) 2021 Dow Jones & Company, Inc.