Oil rises after data shows slump in US output amid Texas freeze

[NEW YORK] Oil prices climbed on Wednesday to fresh 13-month highs after US government data showed a drop in crude output after a deep freeze disrupted production last week.

US crude oil production dropped last week by more than 10 per cent, or 1 million barrels per day, during the rare winter storm in Texas, equaling the largest weekly fall ever, the Energy Information Administration said. Refinery crude inputs dropped to the lowest since September 2008 as the freeze knocked out power to millions.

"If you're getting that kind of drop in one week of EIA production, you're likely to get more after that," said Phil Flynn, senior analyst at Price Futures in Chicago.

"There is some concern that this will be a long-term permanent production drop."

Traffic at the Houston ship channel was slowly coming back to normal but terminals were still facing several issues. After nearly a quarter of national refining capacity was idled by the freeze, refineries have also started to come back online this week.

Brent crude futures rose US$1.67, or 2.6 per cent, to settle at US$67.04 a barrel. The global benchmark hit a session high of US$67.30 a barrel, its loftiest since Jan 8, 2020.

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US West Texas Intermediate (WTI) crude futures ended US$1.55, or 2.5 per cent, higher at US$63.22 a barrel, after touching US$63.37, also their highest since Jan 8, 2020.

The rally continued oil's steady march to levels not seen since prior to the coronavirus pandemic as vaccine distribution increases and on forecasts for renewed demand.

Oil prices have rallied about 30 per cent since the start of the year, boosted as well by ongoing supply cuts by the Organization of the Petroleum Exporting Countries and its allies.

Some investors have piled into US$100 US oil options contracts as appetite for commodities as a hedge against inflationary pressure is rising, industry sources said.

Volumes in bullish call options and call option spreads for US crude for delivery in December 2021 and December 2022 have surged over the past week, dealers said.

About 50,000 options traded in December 2022 on the call spread between oil at US$99 and US$100 a barrel as well as those between US$98-US$100 and US$90-US$100 oil, dealers said.

Opec+ oil producers will discuss a modest easing of oil supply curbs from April given a recovery in prices, Opec+ sources said, although some suggest holding steady for now given the risk of new setbacks in the battle against the pandemic.

REUTERS