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Fuel cell stocks have become the talk of the town. What’s fueling this enthusiasm?

Hydrogen fuel cells have recently garnered lots of interest from policymakers, environmental bodies, companies, and retail investors. That has driven stocks of fuel cell companies, including Plug Power (NASDAQ:PLUG) and FuelCell Energy (NASDAQ:FCEL), to astronomical highs in the last couple of years. Investors looking for multibagger returns jumped onto the hydrogen bandwagon, adding to the momentum in these stocks. However, with the market realizing the many risks that fuel cell companies face, these stocks have seen a major correction in the last few weeks.

But what’s behind the excitement? Let’s take a closer look at the factors fueling the enthusiasm for hydrogen and fuel cells.

Europe’s push for clean energy

In 2018, the European Union came out with a strategic vision for promoting hydrogen as a fuel. It envisioned as much as 14% of Europe’s energy coming from hydrogen by 2050. Europe has been advancing the use of clean energy for decades. In addition to climate change concerns, a key factor behind the union’s push for clean energy is its dependence on oil and gas imports.

The European Union, excluding the UK, spends more than $250 billion each year on fossil fuel imports. Moreover, Russia accounts for nearly 40% of all the natural gas and 26% of all the petroleum imports into the EU. The union thus realizes the importance of developing renewable energy sources internally to reduce this dependence as well as create local jobs. That’s one of the reasons fuel cell companies such as Plug Power are finding attractive partnership opportunities in the European region.

With the development of shale plays, things on the energy front aren’t as pressing for the U.S. However, hydrogen offers several benefits, making it a promising fuel for meeting global energy needs. Though hydrogen as a fuel has been around for decades, the falling costs of renewable energy generation have now made economically viable green hydrogen a real possibility.

Uses and advantages of hydrogen fuel cells

The easiest way to use hydrogen as a fuel is to blend it with natural gas. Existing natural gas transport infrastructure can support the transport of gas blended with a small fraction of hydrogen.  Another major use of hydrogen as a fuel is in the transport segment. This requires energy storage using fuel cells. A fuel cell uses hydrogen to produce electricity that can be used to power vehicles. As the only by-product of this process is water, it is a very environmentally friendly way to generate power — a key advantage of hydrogen fuel cells over gasoline or diesel-powered vehicles.

Further, fuel cells tend to be more compact and recharge faster than batteries. That gives fuel cells an edge over batteries, especially for large vehicles such as trucks. Moreover, in the shipping and aviation segments, where the use of batteries is not feasible, hydrogen fuel cells can be a great low-carbon option. In stationary power generation, too, the excess power can be used to generate hydrogen, through electrolysis, to store for future use. Electrolysis involves breaking water into hydrogen and oxygen using electricity.

Hydrogen fuel cells are thus seen as having a key role in the future energy mix. However, they are not without limitations.

Risks and limitations of fuel cells

First and foremost, using electrolysis to produce hydrogen and then using it again to produce electricity causes significant energy losses. Current battery technology is more energy-efficient. Hydrogen storage and transport also need to be done at low temperatures and high pressure, which itself requires substantial energy. Hydrogen’s highly combustible nature adds to the challenges in its storage and transport.

Another key limitation in the use of hydrogen fuel cells in the mobility sector is the limited availability of supporting infrastructure, such as filling stations. At the end of 2019, only 25,210 fuel cell electric vehicles were in use globally compared to 7.2 million battery electric vehicles. Similarly, there were only 470 hydrogen refueling stations worldwide at the end of 2019. In comparison, there were 0.8 million electric chargers, excluding 6.5 million private, slow chargers used mainly in homes. Higher penetration of battery-powered electric vehicles means that the incentive to develop infrastructure to support the development of fuel cells isn’t high. That may significantly limit the future adoption of fuel cells in transport applications.

In addition to the above risks, fuel cell stocks such as Plug Power and FuelCell Energy face several company-specific problems such as high customer concentration and persistent losses. For that reason, despite the attention these stocks are getting, it would be wise to exercise caution while deciding to invest in them.

The Motley Fool, by Rekha Khandelwal, March 26, 2021

The Saudi leadership is currently contending with the post-Donald Trump era’s new realities. U.S. President Joe Biden is the new sheriff in town, thus there is no longer an American president in the White House bending over backward to defend Saudi Crown Prince Mohammed bin Salman (MBS).

From Trump’s reaction to the murder of Saudi journalist Jamal Khashoggi to his administration’s strong support for the Saudi-led military campaign in Yemen, Biden’s predecessor was perhaps the most Saudi-friendly American president ever.

As a candidate, Biden made it clear that he would deal with the Saudi kingdom, which the former vice president called a global “pariah,” in very different ways. By temporarily freezing arms sales to Riyadh and ending U.S. support for Saudi Arabia’s “offensive” military operations in Yemen, Biden is to some extent making good on these campaign promises.

It is fair to ask how Riyadh might look to foster stronger relations with “alternative powers” in order to offset risks amid the Biden era. This raises questions about how Biden’s presidency might serve to push Saudi Arabia closer to Russia, especially if Riyadh seeks to further diversify its global partnerships at a time in which the kingdom is less confident in the U.S. as a security guarantor.

To be sure, the strengthening of relations between Saudi Arabia and Russia goes back a number of years, predating Biden’s presidency.

Although the Syrian crisis that erupted in 2011 fueled high levels of friction between Riyadh and Moscow, once the Saudi kingdom essentially came to terms with the fact that Bashar Assad’s government essentially “won” the civil war, Riyadh began looking at Moscow differently.

The Saudis did not welcome the Russian intervention in defense of the Iran-backed Damascus regime; however, the kingdom’s leadership did take stock of Moscow’s decisive action, which contrasted significantly from the Barack Obama administration’s decision in Syria, particularly regarding the “red lines” fiasco from 2013.

The lesson learned by various Arab regimes, including Saudi Arabia’s, was that Russia stands by its allies and partners in the region unlike the U.S., which more Gulf states began seeing as increasingly unreliable.

Moscow-Riyadh relations

King Salman’s historic visit to Moscow in October 2017 was a watershed in bilateral relations. While the Russians hosted Saudi Arabia’s ruler, the two countries signed 15 agreements with the Russian Direct Investments Fund (RDIF) and Saudis’ Public Investment Fund (PIF), agreeing to make investments worth more than $1 billion along with the launch of projects in domains that included energy, defense, petrochemicals, logistics, technology and transport infrastructure.

During the king’s visit, the Saudis signed an agreement to purchase Russia’s S-400 missile defense system – a troubling sign for Washington, which has staunchly opposed its allies and partners in the region such as Turkey and Iraq looking to the Kremlin for this air defense system.

One year later, the Khashoggi murder case afforded Russia’s leadership the chance to bring MBS closer to Moscow and further away from the West.

While the outrage over the dismemberment of Khashoggi at the Saudi Consulate in Istanbul in October 2018 severely damaged MBS’s reputation and image in the West, Putin’s government made it clear to Riyadh that this file would not interrupt the upward trajectory in Russian-Saudi relations.

The G-20 summit in Argentina, held less than two months after Khashoggi’s killing, highlighted this dynamic. This became especially apparent when Putin high-fived MBS at the event where Western officials were keen to avoid being cordial to the Saudi crown prince, at least when cameras and journalists were present.

The message is clear: Russia is content to continue investing in stronger ties with Saudi Arabia without allowing human rights issues to strain bilateral relations.

Putin’s response to the Aramco attacks of September 2019 was also illustrative of the Kremlin’s efforts to further capitalize on Riyadh’s growing unease with its reliance on Washington as the kingdom’s security guarantor.

Shortly after that episode, Putin was in Ankara with President Recep Tayyip Erdoğan and Iranian President Hassan Rouhani when he responded to the attacks on the Saudi oil infrastructure.

From the Turkish capital, Russia’s head of state took advantage of the opportunity to tell the Saudis that they ought to follow in Turkey and Iran’s footsteps in terms of deepening defense relations with Moscow.

Putin stated, “We are ready to provide respective assistance to Saudi Arabia, and it would be enough for the political leadership of Saudi Arabia to make a wise government decision – as the leaders of Iran did in their time by purchasing S-300 and as President Erdoğan did by purchasing the latest S-400 ‘Triumph’ air defense systems from Russia.”

He went further, maintaining that Russian weaponry would be able to protect Saudi infrastructure from any such future attacks.

Today, one month into the new U.S. administration, the Washington-Riyadh partnership is strained. The Saudis are not pleased about the fact that Biden, as a presidential hopeful in 2019, said the Saudi regime has “very little social redeeming value.”

Nor is it welcome news in the kingdom that the U.S. leadership plans to soon release an unclassified summary of findings of MBS’s purported role in Khashoggi’s killing.

Putin’s government has demonstrated to MBS that Moscow will not put any pressure on Saudi Arabia (or any Arab state) when it comes to human rights.

These dynamics give the Kremlin an opportunity to strengthen Russia’s relations with Riyadh – a factor which the Biden administration cannot ignore.

While Moscow continues pushing to create a more multipolar world, Russia will likely work hard to bolster its ties with Saudi Arabia at the expense of the Washington-Riyadh partnership as Saudi officials worry about the kingdom’s relationship with Biden’s administration.

Limits to the partnerships

Looking ahead, there is quite a bit about Putin’s foreign policy that MBS and others within the Saudi leadership will find appealing.

Furthermore, as Russia lacks the type of democratic institutions and civil society that exist in the U.S. and European countries, MBS knows that public opinion in Russia will have less bearing on Moscow’s dealings with Riyadh compared to the ways in which Washington and London approach their historic partnerships with the kingdom.

There is every reason to expect the Russians to continue promoting their brand in the Arab region with Saudi Arabia being an important part of this audience.

Nonetheless, it is unrealistic to expect the Russians to quickly replace the U.S. as Saudi Arabia’s most important partner on the international stage.

As Arman Mahmoudian, an expert on Russia who is an advisor at Washington-based geopolitical risk consultancy Gulf State Analytics, explained, “Saudi Arabia sees Russia as leverage over the United States more than an alternative power to the United States.”

Two important factors will prevent the Saudis from ever considering a permanent geopolitical pivot away from Washington that establishes Moscow as the kingdom’s top international partner.

First, Russia is less powerful than the U.S. as a military force in the Middle East, particularly in the Arabian Peninsula.

Second, Moscow has an Iran-friendly foreign policy that has fueled “a sort of genuine distrust toward Russia on the part of the Saudi leadership.”

Until these factors change, Saudi Arabia will likely remain far more under the U.S.’ influence than the Russians’.

The extent to which Putin can further capitalize on tensions between MBS and the West will be important to monitor when analyzing what comes next for Russia-Saudi Arabia relations.

Now that MBS no longer has Trump in the White House and there is a Democratic leadership in Washington, we could witness some strengthening of Moscow-Riyadh relations, albeit with real limitations.

*CEO of Gulf State Analytics, a Washington-based geopolitical risk consultancy

*Intern at Gulf State Analytics

U.S. refiners are scaling back on hiring ships for longer periods to save on costs in another sign of uncertainty over when global oil demand will return to pre-COVID levels, shipping and trade sources say.

The global rollout of coronavirus vaccines and the expectation that government-offered stimulus packages will boost the world economy has raised expectations of a recovery in oil consumption. But fuel demand remains sluggish, keeping oil refiners under pressure and looking for ways to limit further losses.

The International Energy Agency, for example, does not expect oil demand to catch up with supply until about the third quarter.

U.S. bookings for tankers hired on longer-term contracts, known as time charters, have dropped in recent weeks, as this usually means paying for longer hire costs, the sources said.

“It is tough taking a time charter now as it will lose money for the next few months and is hard to justify,” one shipping source said.

Time charter rates for medium-range oil products tankers have fallen from their 2020 peaks, with one-year charters around $12,000 a day from highs of around $20,000 a day in July of last year, industry estimates showed.

Earnings for three-year and five-year time charters have also dropped from last year’s highs, a trend which is weighing on profits for tanker owners.

“2021 is bound to become a bad year for oil product tankers – more so, as the option to manage bits and pieces of your risk in the time charter market is slim,” said Peter Sand, chief shipping analyst with trade association BIMCO.

Sand added that there were more time charters concluded in 2020 than in the two previous years.

This was partly because tankers were booked for storage as oil demand plummeted.

One U.S. refining executive said it did not plan to go back to chartering long-term vessels in the future to cut costs.

“The last thing you need is to get stuck with several millions of dollars worth of unused vessels for the year. We have had several cases of that,” the U.S. executive said.

U.S. refiners were also hit by the cold conditions in Texas in January, which triggered a drop in refinery throughput, leaving fewer refiners seeking vessels for shipments and temporarily cut overall refined product exports.

U.S. refined product exports have fallen in five of the last six weeks, based on EIA figures.

“Local (U.S.) demand was met by storage drawdowns, and combined with the refinery outages, this put significant downward pressure on the export market, which was already being hit by weak demand from the COVID pandemic,” shipping group Maersk Tankers told Reuters.

In addition, the wind down in floating storage from last year’s peaks has added to a surplus of tankers available for hire

Reuters, by Jonathan Saul, March 19, 2021

The torrent of Iranian oil that’s been gushing into China in recent weeks is crowding out imports from other nations and threatening to complicate efforts by the OPEC+ alliance to tighten supply in the global market.

China, the world’s largest crude oil importer, is currently buying close to 1 million barrels a day of sanctioned crude, condensate and fuel oil from the Persian Gulf nation, according to estimates by traders and analysts. That’s displacing favored grades from countries such as Norway, Angola, and Brazil, traders said, and resulting in an unusually quiet spot market.

Most refiners and traders around the world are reluctant to buy Iranian crude because of U.S. sanctions, which can result in repercussions like being cut off from the American banking system. However, the seemingly unstoppable rally in global crude prices is making the sharply discounted Iranian oil increasingly attractive to Chinese buyers including its independent refiners, which account for around a quarter of the country’s crude-processing capacity.

While global benchmark Brent is trading near $70 a barrel due to improving demand and tighter supplies from OPEC+, a continuation or increase in the Iranian flows could stymie the alliance’s efforts to keep driving up prices.

Iran is a member of the Organization of Petroleum Exporting Countries, but is exempted from the supply restrictions. However, China’s preference for its cheap crude is displacing demand from OPEC countries like Angola as well as other producers like Norway and Brazil — although the quality of oil from all of these countries is not identical.

As many as 10 million barrels of Angolan oil due for April export were still without buyers as of earlier this week, according to traders, compared with a typical month when such cargoes would have be sold out by now. Grades from Nigeria and Republic of the Congo have also struggled due a lack of buying interest, the traders said.

Three supertankers carrying oil from Norway’s Johan Sverdrup field have been floating off China for at least two weeks without discharging, shipping data show. Only 16 million barrels of North Sea crude left Europe for Asia in February, the least in four months, with the downward trend likely to continue in the short term, said traders involved in the market.

“With increased flows from places like Iran, and all the other grades’ arbitrage to China closed currently, the spot market is looking really weak,” said Yuntao Liu, an analyst with London-based Energy Aspects Ltd. “Between now and June to July, the teapots’ preferred grades such as West African crudes, Norway’s Johan Sverdrup and Brazilian crudes will be quite hard to sell.”

Chinese independent processors are often described as teapot refiners.

The Iranian oil flowing to China is a mix of barrels that are transported directly from the Persian Gulf, as well as Iranian-origin cargoes that are rebranded as Middle Eastern or Malaysian grades. Chinese imports of crude from the nation will average 856,000 barrels a day this month, the most in almost two years, data intelligence firm Kpler said last week.

Most of it is being purchased by domestic Chinese trading houses, traders said, as private and state-owned refiners try to distance themselves from dealings with the U.S.-sanctioned nation. It’s likely that these supplies will be temporarily held in onshore tanks before getting resold to local refineries on a later date, they added.

These private processors, which are mostly based in Shandong province, have been known to refine Iranian and Venezuelan crude into fuel, and utilize sludgy, low-quality fuel oil as feedstock for their units.

The increased Iranian flows are happening as the administration of President Joe Biden attempts to revive a nuclear deal with Tehran. The Persian Gulf supplier exported around 2.5 million barrels a day of oil before the sanctions were first imposed in 2018. Iran is starting the year as the “biggest wildcard” for oil prices, Ed Morse, head of commodities research at Citigroup Inc., said in a note in January.

Bloomberg, by Bloomberg News, March 19, 2021

Bp plc announced that it is developing plans for the UK’s largest blue hydrogen production facility, targeting 1GW of hydrogen production by 2030.

The project would capture and send for storage up to two million tons of carbon dioxide (CO₂) per year. The proposed development, H2Teesside, would be a significant step in developing ‎bp’s hydrogen business and make a major contribution to the UK Government’s target of developing 5GW of hydrogen production by 2030.

With close proximity to North Sea storage sites, pipe corridors and existing operational hydrogen storage and distribution capabilities, the area is uniquely placed for H2Teesside to help lead a low carbon transformation, supporting jobs, regeneration and the revitalisation of the surrounding area. Industries in Teesside account for over 5% of the UK’s industrial emissions and the region is home to five of the country’s top 25 emitters.

Dev Sanyal, bp’s executive vice president of gas and low carbon energy said: “Clean hydrogen is an essential complement to electrification on the path to net zero. Blue hydrogen, integrated with carbon capture and storage, can provide the scale and reliability needed by industrial processes. It can also play an essential role in decarbonising hard-to-electrify industries and driving down the cost of the energy transition.

“H2Teesside, together with NZT and NEP, has the potential to transform the area into one of the first carbon neutral clusters in the UK, supporting thousands of jobs and enabling the UK’s Ten Point Plan.”

UK Energy Minister Anne-Marie Trevelyan, said: “Driving the growth of low carbon hydrogen is a key part of the Prime Minister’s Ten Point Plan and our Energy White Paper and can play an important part in helping us end our contribution to climate change by 2050.

The project would be located in Teesside in north-east England and, with a final investment decision (FID) in early 2024, could begin production in 2027 or earlier. bp has begun a feasibility study into the project to explore technologies that could capture up to 98% of carbon emissions from the hydrogen production process.

With large-scale, low cost production of clean hydrogen, H2Teesside could support the conversion of surrounding industries to use hydrogen in place of natural gas, playing an important role in decarbonizing a cluster of industries in Teesside.

Blue hydrogen is produced by converting natural gas into hydrogen and CO₂, which is then captured and permanently stored. H2Teesside would be integrated with the region’s already-planned Net Zero Teesside (NZT) and Northern Endurance Partnership (NEP) carbon capture use and storage (CCUS) projects, both of which are led by bp as operator.

The project’s hydrogen output could provide clean energy to industry and residential homes, be used as a fuel for heavy transport and support the creation of sustainable fuels, including bio and e-fuels.

The project would be developed in stages, with an initial 500 MW of blue hydrogen capacity in production by 2027 or earlier and additional capacity to be deployed by 2030 as decarbonization of the industrial cluster and hydrogen demand gathers pace. bp sees potential for further hydrogen demand in Teesside beyond 2030.

Aiming to accelerate the development of the hydrogen cluster, bp has made a number of agreements with possible partners.

bp has agreed a memorandum of understanding (MoU) with Venator, one of the largest global producers of titanium dioxide pigments and performance additives, to scope the supply of clean hydrogen to its flagship Teesside plant.

bp has also agreed an MoU with Northern Gas Networks (NGN), the gas distributor for the North of England, to work together to initiate decarbonisation of the gas networks in the UK, helping to further decarbonise both industrial customers and residential homes through its gas network.

Separately, bp has also signed an MoU with Tees Valley Combined Authority (TVCA) to explore the potential for green hydrogen in the region, including the development of Teesside as the UK’s first hydrogen transport hub, as announced by the UK’s Department for Transport in September 2020. Green hydrogen is produced by the electrolysis of water, powered by renewable energy.

The development of businesses in emerging technologies such as ‎hydrogen and CCUS is an integral part of bp’s strategy of ‎transforming to an integrated energy company.‎ Hydrogen is expected to play a critical role in decarbonising the ‎power, industrial and transport sectors, especially those that are hard- or ‎expensive-to-electrify.

Last year, bp and Ørsted signed a Letter of Intent (LOI) to work together to develop a ‎project in Germany for industrial-scale production of green hydrogen, made by the electrolysis of water using ‎renewable power.

Chemical Engineering, by Mary Page Bailey, March 19, 2021

The world’s top oil exporter, Saudi Arabia, wasn’t just thinking about the global oil market when it rolled over its extra production cut into April and had the members of the OPEC+ alliance keep their total output basically flat next month, with small increases for Russia and Kazakhstan.  The Saudis, as well as other crude oil producers in the Middle East, were probably thinking of their budgets and current accounts as well, which need high oil prices to recover from the massive deficits and low oil revenues from last year, when the sudden oil demand and oil price collapse impacted their economies more than non-oil exporters during the pandemic. 

While aiming to further tighten the oil market, the OPEC+ group and its leading OPEC members in the Arab Gulf are also plugging some of the shortfalls from 2020, with Brent oil prices nearing the $70 a barrel mark. 

Higher oil prices are lowering the need for massive borrowing of the governments in the oil producers part of the Gulf Cooperation Council (GCC)—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE). 

Last year, bond issues in the Middle East hit a record high of over $100 billion. Governments rushed to raise taxes and cut spending after the March 2020 collapse in oil prices. But these measures were insufficient to contain the damage, so producers incurred more debt to cover government spending, even if that spending was reduced compared to previous years.

If oil prices remain around their current levels over the next three years, GCC oil producers would dramatically cut their need to borrow money on the debt markets, Goldman Sachs economist Farouk Soussa says in a new report, as carried by Bloomberg. 

Oil averaging $65 per barrel over the next three years, all else being equal, would cut the borrowing needs to just $10 billion, compared to $270 billion, according to Goldman’s Soussa.

The current price of oil nearing $70 is good news for Saudi Arabia and basically every oil-producing nation in the world, as it would boost oil revenues that were decimated last year. Saudi Arabia, for example, was expected to see a $27.5-billion decline in oil revenues in 2020, Saudi Crown Prince Mohammed bin Salman himself said in November, admitting that the oil income was not enough to cover the Kingdom’s salaries bill.   

It’s not a total surprise, then, that the Saudis were pushing for—and obtained—an extension of the current OPEC+ cuts into April, or at least until clear signs of oil demand recovery emerge. 

An overtightened market would support higher oil prices, at least for a few months, until high oil prices potentially start to erode what OPEC+ still sees as a fragile global demand recovery, or until U.S. shale, especially privately held operators, become too tempted to pass on the opportunity to boost their oil production and revenues.

Signs have already started to emerge in India—the world’s third-largest oil importer—that high oil prices are slowing down the demand recovery after the crude price rally sent prices at the pump to record highs in recent weeks. 

Moreover, while higher oil prices are a boon to Middle East producers’ government revenues, they could once again become the excuse for many producers in the Gulf to overspend again and not undertake deep structural reforms to really reduce the dependence of their economies on oil revenues. 

Despite the Saudi Vision 2030 and continuous pledges for diversification from other oil producers in the Middle East, economies are still very much reliant on oil and the volatile nature of oil prices. The supply management policies of OPEC+, led by OPEC’s de facto leader Saudi Arabia, have sent oil prices rallying since the start of 2021, with budgets benefiting from the price spike. Yet, complacency with short-term oil revenue gains is setting the stage for more economic pain in the Middle East when oil prices enter the next bust cycle.

Oil Price, by Tsvetana Paraskova, March 19, 2021

NEW YORK — Charles Sussman, managing director and co-head of global oil trading at Bank of America Merrill Lynch (BAML), has left after nearly 10 years with the firm, two sources familiar with the matter said on Wednesday.

A spokeswoman for BAML declined to comment. Sussman did not respond to a request for comment.

Wall Street often sees staffing changes around this time of the year after bonuses are handed out.

Bonuses for some traders at BAML were largely flat even though the bank’s trading desk had positive returns last year, one of the sources said.

Bank of America cut some of its staff in the global banking and markets division last week, Bloomberg News reported.

It was not immediately clear whether Sussman’s departure was related to the cuts.

Reuters, by Devika Krishna Kumar , March 16, 2021

NEW YORK – Oil prices were mixed on Thursday with U.S. crude edging up to its highest close since 2019 as Texas refineries restarted production after last week’s freeze, while Brent eased on worries that four months of gains will prompt producers to boost output.

Earlier in the day, an assurance that U.S. interest rates will stay low and a sharp drop in U.S. crude output last week due to the winter storm in Texas, helped boost both U.S. crude and Brent to their highest intraday prices since January 2020.

Brent futures for April delivery fell 16 cents, or 0.2%, to settle at $66.88 a barrel. The April Brent contract expires on Friday.

U.S. West Texas Intermediate (WTI) crude, meanwhile, ended 31 cents, or 0.5%, higher at $63.53, its highest close since May 2019.

Analysts said WTI increased late in the day as more Texas refineries started to return to service, including Valero Energy Corp’s Port Arthur plant and Citgo Petroleum Corp’s Corpus Christi plant.

The freeze caused U.S. crude production to drop by more than 10%, or a record 1 million barrels per day (bpd) last week, while refining runs tumbled to levels not seen since 2008, the Energy Information Administration said. [EIA/S]

“The more refineries return to service, the more crude oil they will burn through, and the less crude oil will go to storage,” said Bob Yawger, director of energy futures at Mizuho in New York.

Overall, however, analysts noted price gains slowed on Thursday.

“With momentum appearing to slow a week before the next OPEC+ meeting, crude may be positioning for a small correction,” said Craig Erlam, senior analyst at OANDA, noting “There’s still plenty of downside risks in the market and one of them is OPEC+ unity coming under strain in the coming months.”

The Organization of the Petroleum Exporting Countries and its allies including Russia, a group known as OPEC+, are due to meet on March 4.

Analysts noted recent higher oil prices – both Brent and WTI have gained more than 75% over the past four months – could encourage U.S. producers to return to the wellpad and OPEC+ to loosen its production reductions.

The group 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.

Extra voluntary cuts by Saudi Arabia in February and March have tightened global supplies and supported prices.

Meanwhile, an assurance from the U.S. Federal Reserve that interest rates would stay low for a while helped support oil prices earlier in the day and should boost investors’ risk appetite and global equity markets.

Reuters, by Scott DiSavino, March 16, 2021