Pump jacks 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 both increased demand for fuel while simultaneously hampering production.
More than 3.8 million people were left without power across Texas on Tuesday morning, according to poweroutage.us, as the electric grid couldn’t keep up with heightened demand, forcing utilities to implement rolling blackouts in some cases.
“The majority of heating needs are met via electrical baseboard of heat pumps in the southern region,” said John Kilduff, founding partner at Again Capital. “The demand for electricity, over the weekend, rivaled peak summer heatwave levels.”
“The storm that has crippled the Midwest and North East was much worse than expected,” said Jeff Kilburg, CEO at KKM Financial. “Frigid temps and speculators caught short are dramatically moving futures prices higher.”
The storm knocked out about 30 gigawatts of generation capacity, according to estimates from ClearView Energy Partners, just as consumers were driving up demand to heat their homes. Ultimately, there just wasn’t enough supply, forcing power companies to turn to the open market to buy electricity.
“Weather is severe enough to curtail supply when demand is near all-time high levels. Certain regional natural gas spot prices have shot up 10- to 100-fold in a matter of days,” noted analysts at RBC.
West Texas Intermediate crude futures, the U.S. oil benchmark, broke above $60 for the first time in more than a year on Monday, although the contract was trading shy of that level on Tuesday morning. Brent crude, the international oil benchmark, slid 21 cents to $63.09 per barrel.
Generating units across fuel types have been forced offline — including some wind production — and pipeline freezes are implementing the flow of natural gas and crude oil. Texas is the largest crude oil and natural gas producer in the U.S. and has 30 refineries, according to data from the U.S. Energy Information Administration.
“The new outages will tighten supply for refined fuels as over 3 million barrels of capacity have been now hit,” noted Paola Rodriguez Masiu, vice president for oil markets at Rystad Energy.
“About 2.5 million bpd of capacity was shut between Houston and Louisiana, including the 600,000 bpd’s Motiva Enterprises facility,” she added, referring to the measurement of barrels per day.
The energy sector gained more than 2% during premarket trading on Tuesday. Occidental Petroleum was up 6% in premarket trading, while Exxon, Devon Energy, Halliburton and ConocoPhillips were all up more than 2%.
On Sunday President Joe Biden declared a state of emergency in Texas as the storm brought snow and ice from Arkansas to Indiana. The storm is forecast to move from the Ohio Valley through Pennsylvania and up into Maine, according to the National Weather Service.