Oil prices up, U.S. crude at more than two-year high on pipeline outage

metro

7 years ago

Oil prices Oil prices climbed on Friday, with U.S. oil crude hitting a more than two-year high as North American markets tightened on the partial shutdown of a pipeline linking Canada with the United States.

U.S. light crude CLc1 hit $58.91 a barrel, a high last seen in June 2015, before easing to trade 83 cents up on the day at $58.85 by 1230 GMT.

Trading activity was expected to be low on Friday due to the U.S. Thanksgiving holiday.

Benchmark Brent crude LCOc1 was trading up 23 cents at $63.78 a barrel.

PVM Oil Associates strategist Tamas Varga said the spill that shut the Keystone pipeline was helping U.S. crude, flipping prices into backwardation, when front-month prices rise above those for future months, indicating an undersupplied market.

“January is now 4 cents more expensive than February, and I think we have not seen that for three years,” he said.

The pipeline spill on Nov. 16 reduced the usual 590,000 barrel-per-day flow to U.S. refineries, driving down inventories at the storage hub of Cushing, Oklahoma, traders said.

Markets have also tightened globally due to output cuts since January by the Organization of the Petroleum Exporting Countries, Russia and several other producers.

OPEC meets on Nov. 30 and is expected to extend the pact to curb supplies beyond its March expiry, although Russia has sent mixed signals about its support for an extension.

“With the majority of OPEC members endorsing an extension, Russian support is the key risk,” Jon Rigby, head of oil research at UBS, wrote in a note.

President Vladimir Putin indicated in October that Russia backed extending the deal to the end of 2018, but comments by officials and in the Russian media have created uncertainty since then, he said.

J.P. Morgan said a decision on any extension could be delayed until next year if Brent stayed above $60.

However, rising U.S. oil production C-OUT-T-EIA has curbed crude price gains, as it fills some of the gap left by OPEC and its allies. U.S. output jumped by 15 percent since mid-2016 to a record 9.66 million bpd, thanks largely to shale drilling.