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Oil up on Alaska pipeline closure, cold weather

Oil up on Alaska pipeline closure, cold weather
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First Published: Wed, Jan 12 2011. 04 17 PM IST
Updated: Wed, Jan 12 2011. 04 17 PM IST
New York: US oil prices rose more than 1% on Monday after a leak shut the Trans Alaska Pipeline, which carries nearly 12% of domestic crude output.
The pipeline closed on Saturday because of a leakage at a pump station booster in Prudhoe Bay, forcing producers to cut output to 5 percent of their daily average of 630,000 barrels.
No restart date has been set, the Alaska Department of Environmental Conservation said. The plan is to build a bypass line and use that to restart the system, it said. Federal regulators also had no restart timetable.
The spread between London’s ICE Brent and US crude prices seesawed, narrowing early then widening to over $6 a barrel as Brent gained more than its US counterpart.
US heating oil had the strongest percentage gains in the oil futures complex, lifted by a government forecast for total heating demand to be 10.5% above normal and for heating oil demand to average 4.2% above normal this week.
US crude oil for February delivery rose 90 cents, or 1.02%, to $88.93 a barrel by 12:51pm EST (1751 GMT), off an early peak of $89.98.
Trading volume in US crude futures totaled more than 629,000 lots by midday in New York, following Friday’s tally of over 1 million lots and already near the 250-day average of 670,020 lots, Reuters data showed.
In London, ICE Brent crude for February rose $1.72 to $95.05 a barrel, having traded as high as $95.88.
“Of course a pipeline with a magnitude like that is supportive for crude prices. It is normal that first the market reacts a bit too much. But then it is a question of how long the line will be closed,” said Hannes Loacker, an oil analyst at Raiffeisen Bank International.
There was some expectation that government regulators on guard after the massive Gulf of Mexico oil spill last spring could take more time than usual to allow a pipeline restart.
Lawrence Eagles of JP Morgan said that from an engineering perspective, he doubted any shutdown would last more than two to three days.
“However, government inspectors are likely to want a more comprehensive understanding of the cause,” he said, adding that the outage could last a week or more as a result. “One of the clear messages from the Macondo oil spill in the Gulf of Mexico is that unplanned outage assessments will have to be increased going forward.”
The premium of Brent over US crude rose back above $6 a barrel, after the spread fell to $5.30 based on Friday settlement prices.
The spread reached as much as $6.56 intraday on Thursday, the widest since 3 May 2010.
Brokers and analysts have cited funds being attracted to Brent’s stronger, backwardated price as helping lift its premium to US crude, along with lower exports from Nigeria and Europe’s cold weather.
“Brent has been lifted by the unusually cold weather in Europe coming on top of the French refineries being affected by strikes that tightened supplies, so refiners are looking for higher-yielding sweet crudes,” said Phil Flynn, analyst at PFGBest Research in Chicago.
The Brent/US spread narrows in March and other nearby months.
Dollar strength limited gains in oil early as concerns about Portugal’s debt weakened the euro, but the single currency later bounced and the dollar index fell.
The euro underwent a technical correction after falling to lows not seen since mid-September.
A weaker dollar can lift dollar-denominated oil prices because it makes crude less expensive for consumers using other currencies.
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First Published: Wed, Jan 12 2011. 04 17 PM IST
More Topics: Markets | Oil | Crude Prices | Commodities | Brent |