London: Oil rose to a one-month high on Monday, spurred higher by strong Chinese demand growth and industrial output, while an extended shutdown of a major Canada-U.S. crude pipeline tightened supply.
US crude for October climbed as much as $1.05, to $77.50 a barrel, the highest price since 12 August, and was up 85 cents at $77.30 by 2:14pm. Brent rose 11 cents to $78.27.
Chinese factories ramped up production by a higher than expected 13.9% in August as the economy of the world’s second-largest oil user remained buoyant despite government efforts to clamp down on bank lending.
Reflecting accelerating industrial activity, China’s implied oil demand rose by 7.4% in August from a year earlier. “The Chinese data was overwhelmingly positive,” said Ben Westmore, a commodities analyst at National Australia Bank.
“China is in a soft landing after all the stimulus, and emerging economies are growing quite strongly. In terms of oil use, that portends strong demand in the coming months.”
Enbridge’s Line 6A, connecting Canadian production with refineries in the Midwest and the pricing hub for the U.S. crude benchmark at Cushing, Oklahoma, remained shut following a leak on Thursday.
No date has yet been set for restoring flows through the 670,000 barrel per day (bpd) duct, which can carry 7-8% of total US crude imports.
“One of the big concerns has been the stocks at Cushing,” Westmore said. “The longer the pipeline is down, the more likely it is that these stocks are going to fall and the market tighten in that area.”
Canada is the largest oil exporter to the US and Enbridge’s pipelines carry the bulk of that. The shutdown of the company’s biggest line might reduce a glut in Cushing storage.
A section of the pipeline will have to be removed so the repair can be made, the US Environmental Protection Agency said. That section will have to be replaced and inspections done by federal regulators before use of the line can resume.
Six weeks ago, Enbridge was forced to shut another smaller part of its Lakehead system, which the US government has not yet allowed to resume operations following heightened scrutiny because of BP Plc’s Gulf of Mexico spill.
Brent posted a premium of more than $3.50 a barrel to US crude last week, its highest since mid-May, but that had shrunk to less than $1 on Monday.
Hurricane Igor strengthened rapidly over the Atlantic Ocean on Sunday, becoming a large and dangerous Category 4 storm, but its forecast trajectory kept it in the Atlantic heading towards Bermuda at least for the next five days, away from oil and gas infrastructure in the Gulf of Mexico.