The Cold Snap In Texas Raises Oil prices Temporarily – It Is Reasonable For The Rise To Be Gradual

Brent crude is now up 1% to 40 usd/barrel

Bankinter | The price of oil rebounded strongly yesterday (Brent $63.3, +1.4%; West Texas $59.5, +2.1%), due to the cold weather in Texas, the main US oil state, which is causing supply problems. Texas produces 4.6 million barrels per day and has one of the largest refineries in the U.S. In addition, there was an increase in tension in the Middle East since Saudi Arabia reported it had intercepted and destroyed a drone carrying explosives in Yemen and that it may belong to the Iranian-backed Houthi Group. Finally, strikes are expected in Norway in the coming days.

Oil prices are rising strongly this year (Brent +18%, WT +23%) following the recovery after the sharp declines of 2020. The mass vaccination programme will have direct impact in terms of global economic growth. In addition, China is a major consumer globally and is recovering strength at a faster pace than expected. Finally, the reduction in oil company investments and lower OPEC production have meant that supply is not rising at the rate it should and this has had a direct impact on crude oil prices. The key question is whether this rise is one-off. Our view is that a rise in crude oil is reasonable, given the expectation of a recovery in economic activity, but the recent sharp rises are one-off. OPEC and Russia meet again next month and could raise production, against a backdrop of rising prices and demand to avoid a reduction in their global market share. Moreover, the recent tensions are the result of a one-off event – the cold snap in Texas. It is therefore reasonable to expect a recovery in prices, but a gradual one. A strong and sustained rise in crude oil prices poses a risk for the stock markets due to the impact this would have on economic growth.