OPIS Insights

Barron’s Senior Energy Writer Laura Sanicola and OPIS Chief Oil Analyst Denton Cinquegrana discuss what’s ahead for oil this week.

Laura Sanicola from Barron’s Energy Insider interviews Denton Cinquegrana, Chief Oil Analyst at OPIS, about the potential impacts on energy markets of severe freezing weather across the US. Drawing comparisons to Winter Storm Uri in 2021, they discuss how cold weather could affect oil and gas infrastructure along the US Gulf Coast and whether winterization upgrades made to natural gas infrastructure after 2021 will make a noticeable difference.

Transcript:

LAURA SANICOLA: Hi, everyone. This is Laura Sanicola, author of Barron’s Energy Insider, and I’m here today with Denton Cinquegrana, Chief Oil Analyst at OPIS. Denton, thanks for joining me.

DENTON CINQUEGRANA: Hey, Laura. How are you?

SANICOLA: Good. So the big story, of course, is this freezing weather that we’re getting all across the US, really giving flashbacks to 2021 and winter storm Uri.

You know, as we discussed in the newsletter this week, gas prices have spiked by the most, you know, in several years.

What’s the ancillary effects on oil and gas here?

CINQUEGRANA: Yeah. Well, it’s a great observation because the comparisons to winter storm Uri in twenty twenty one are are pretty seem pretty similar. Some things to keep an eye out for in West Texas production fields: Will there be issues with valves and pipes? Will they freeze because of the really cold weather? And then, if you remember back in 2021, Gulf Coast refineries were really impacted by the loss of power and the storm. So we lost refining capacity for several days to two weeks.

So that’s something to certainly keep an eye on for the short term. But one of the things that really stands out is here in the Northeast. So a lot of natural gas customers will have what’s called an interruptible clause. So think of large industrial facilities, casinos, like in Atlantic City and New York and Connecticut, etcetera.

Those are the types of places they obviously use a lot of natural gas to run their facilities. But when the cold weather hits, utilities will say, hey. Look. We gotta focus on hospitals and schools and residential areas to make sure we continue to supply them.

So because they get cheaper prices for their natural gas at casinos and industrial complexes, etcetera, we’ll get a a more preferable price. But in exchange, they’ll get the interruptible clause. So when that gets enacted, they’ll have to turn to using diesel and distillate for their boiler purposes. And one thing I see in some of these interruptible clauses that are being enacted, a lot of them say until further notice.

Don’t recall ever really seeing that very often. And with the forecast for weather being, you know, after the storm passes, they’re just bitterly cold for I think it’s something going on the line along the lines of ten days.

So it’s gonna be bitterly cold. Natural gas demand is gonna be obviously quite high in this part of the country. And as a result, with the interruptible clauses, you’re gonna see a lot of diesel use. So diesel markets are responding to that. So following along with what natural gas has done as well.

SANICOLA: And remind me, Denton, you know, after winter storm Uri, I know that there was some mandated weatherization upgrades made to certain natural gas infrastructure. As a reminder, that was when the gas, you know, kind of froze up in the pipes, and and that’s what caused a lot of Texas’ woes back then. You know, what could we reasonably expect, you know, for energy infrastructure, whether it be refiners or or those pump jacks in this weather, assuming that everything, you know, is similar to twenty twenty one?

CINQUEGRANA: Well well, the it’ll be the first test of the any of that modernization. That’s for sure. But if you remember back in twenty twenty one, obviously, crude oil supply was interrupted from from West Texas because of freezing pipes, etcetera. Refineries lost power. Some of them had auxiliary power, but I I think they ended up sending that power back to residential areas because people in Houston were were freezing at the time.

So you could see some refinery outages if this if the electricity supply is lost and the natural gas supply is lost. So those are the two things to to really keep a close eye on over the next several days. But what happened in twenty twenty one is some of those refineries were down for about two weeks.

SANICOLA: Yeah. That’s not an unsubstantial amount of time, and let’s let’s hope we don’t get a repeat of 2021. Thank you so much, Denton, and keep warm. Thanks everyone for joining as well, and we’ll see you next week. Take care.