With oil prices falling as 2% in early trade on Friday, it will take time for refineries to resume their operations following the freezing cold in the South of the USA. As it may create a gap in demand, OPEC+ supplies are expected to rise.
West Texas Intermediate (WTI) crude futures fell $1.14, or 1.9%, to $59.38 a barrel at 0421 GMT, after declining 1% on Thursday.
Brent crude futures dropped $1.03, or 1.6%, to $62.90 a barrel, after declining 0.6% on Thursday.
Both benchmark contracts rose to 13-month highs on Thursday due to historic freezing in the southern US states. With the extreme cold estimated to cover up to a third of US crude oil production, attention has now turned to the impact on refineries.
Although US oil production of Texas refineries is down by about 3.5 million barrels a day, crude oil stocks are expected to increase in the coming weeks.
The front-month WTI price curve dropped to a contango as low as minus 4 cents on Friday. This points to a market structure in which early oil is cheaper than in the following months, which means excess available supply. The small contango probably points to expectations that U.S. crude oil production and supply will recover quickly from refining capacity shut down due to extreme cold in Texas.
US crude inventories fell more than expected from the week of February 12 before cold weather, the Energy Information Administration reported on Thursday. Inventories fell 7.3 million barrels to 461.8 million barrels.
A steadily increasing increase in the crude oil supply of the Organization of Petroleum Exporting Countries and its allies is also noteworthy. Group producers are likely to ease supply restrictions after April due to the recovery in prices.
The United States said on Thursday that it is ready to talk about returning to the 2015 agreement aimed at preventing Tehran from acquiring nuclear weapons. While analysts do not expect Iran’s oil sanctions to be lifted anytime soon, the dissolved relations increase the likelihood of a reversal of the sanctions imposed by Trump.