Oil prices dropped as much as 2 per cent in early trade on Friday, adding to overnight declines, on worries that refineries shut by a big freeze in the U.S. South will take some time to revive operations and dent crude demand.
U.S. West Texas Intermediate (WTI), crude future fell $1.21, or 2 per cent to $59.31 a barrel after declining 1 per cent on Thursday, while Brent crude futures dropped $1.07, or 1.7 per cent to $62.86 a barrel, after declining 0.6 per cent on Thursday.
Both benchmark contracts rallied to 13-month highs on Thursday driven by the historic freeze in U.S. southern states. While analysts estimate the extreme cold has shut in as much as one-third of U.S. crude production, attention has now turned to the impact on refiners.
“The market is concerned about the refinery outages in Texas, where arctic weather has caused power outages and frozen wells and pipes,” ANZ Research said in a note.
The lack of demand from refineries will likely lead to builds in crude stocks over coming weeks, even though around 3.5 million barrels per day (bpd) of U.S. oil output has been shut, ANZ said.
Citi analysts said in a note that some U.S. refineries might bring forward maintenance work normally scheduled for the spring, ahead of the summer driving season.
“Refinery outages could be deeper and longer lasting, especially ahead of the spring maintenance season, as some plants could decide to anticipate planned turnarounds of roughly 500,000 b/d on aggregate over the next month,” Citi analysts said.
U.S. crude stockpiles fell more than expected in the week to February 12, before the freeze, with inventories down by 7.3 million barrels to 461.8 million barrels, their lowest since March, the Energy Information Administration, EIA, reported on Thursday.