Oil prices hit pandemic highs as Texas freezes during a particularly cold front. Severe weather caused West Texas Intermediate (WTI) crude prices to rise above $60 a barrel. In comparison, these prices are the same as the highs experienced during the early days of the coronavirus pandemic.
Crude Futures Go Higher
WTI crude futures ended $60.09 a barrel Monday, a gain of 62 cents or 1%. This means that crude prices already increased 24% in 2021. It went as high as $60.77, which is the highest level since a year ago in January 2020. Meanwhile, Brent crude, the international benchmark, went up 1.4% to $63.33, hitting its own 13-month high.
The cold weather currently engulfing the country is the main reason for the uptick in prices. The extra cold weather increased the demand for power and fuel in North America. In addition, the cold front is also threatening to cut oil production in Texas refineries. “Winter storm and an arctic blast of cold weather that is making its way south to Houston may have some severe impacts on the oil industry,” oil analyst Andy Lipow noted. “Frigid weather means that many oil wells may be shut-in. Water is produced along with oil, and that water can freeze up equipment. The cold air affects oil production in Canada, North Dakota, Oklahoma, Texas, and elsewhere, he added.
Major Winter Storm
The National Weather Service said that more than 150 million Americans are under some form of winter weather advisory. The service expects a major winter storm to dump heavy snow from the Southern Plains into the Northeast. To make matters worse, millions of Texans lost their electricity as demand outstripped supply. The Electric Reliability Council of Texas (ERCOT), the agency managing the state’s electricity grid, called for rotating outages to avoid widespread blackouts. ERCOT estimated around 2 million homes lost power on Monday. The agency warned that outages will continue until the demand subsides.
As Texas freezes, residents responded to the sudden cold by cranking up their heaters, as record low temperatures enveloped the state. The sudden demand for additional energy overloaded the grid. In addition, the cold temperatures also reduced power plants’ capacity to generate electricity. Grid operators say that they lost around 34,000 megawatts. Natural gas and coal-fired plants went offline, while wind turbines froze.
As Texas Freezes, Power Got Expensive
Wholesale power prices surged upwards, exceeding the market price cap of $9,000 MW/hour. Prior to the snowstorm, prices were $50 lower than the cap. ERCOT ordered cutting demand by about 16,500 megawatts, leaving Texans grumbling in the dark for hours. “We have to maintain the balance of supply and demand on the system to maintain the reliability of the system as a whole. If we don’t have more supply, the only thing we can do is start to reduce demand,” said Dan Woodfin, ERCOT senior director of system operations.
Texas utility officials advised its customers to brace for lengthy blackouts instead of rotating outages. Only critical establishments such as hospitals, water facilities, and emergency service providers will remain supplied with electricity. Implementing a rolling blackout is rare even for Texas. The last time this happened was in February 2011 during a winter storm. However, this 2011 incident lasted only eight hours.
ERCOT Wasn’t Ready For a Storm This Big
Texas’ electricity grid runs solely within the state and is not connected to the federal electricity grid. By not crossing state lines, Texas utilities avoid falling under federal regulation. In a way, Texas preferred staying independent. The state contains enough coal, natural gas, and oil reserves to power itself.
ERCOT itself said that the grid is intact but that supplies remain very limited. Dan Woodfin, senior director of system operations at ERCOT said the winter storm is beyond their planning.
“This event was well beyond the design-parameters for a typical or even extreme Texas winter that you would plan for. They began as rotating outages but they’re [now] controlled outages and they are lasting longer than what would normally happen because of the magnitude,” he said.
Watch the WFAA news video which asked How texas, the largest energy-producing state in the US, failed in freezing temperature:
As Texas freezes, should Texans reconsider their power grid system in light of the worsening winter weather? Do they need to reconnect to the federal grid for additional electricity supply, but at the cost of federal regulation? Let us know what you think about the Texas winter and how it affects the US.