Singapore: US crude for October jumped to near $75 on Friday after a leak forced Enbridge to shut down the biggest pipeline supplying Canadian oil to refineries in the Midwest and to a key storage hub in Oklahoma.
Enbridge Inc closed its 670,000 barrel per day (bpd) Line 6A, the largest of the company’s major three, after a leak was discovered near Romeoville, Illinois. The duct accounts for between 7-8% of total US crude imports.
Front-month US crude for delivery in October jumped as much as 1 percent to $74.97 and was up 50 cents at $74.75 a barrel at 9:37am, while the November contract added just 1 cent to $75.80.
Contracts further out fell after a Thursday government report showed total US petroleum inventories climbed to a fresh all-time high on a weekly basis. Record stockpiles at the world’s largest oil-consuming nation have this month depressed the price of US crude relative to European Brent.
“Some people had been selling WTI and buying Brent crude, but now they are covering their shorts, and thereby they have to buy back WTI at the front of the curve,” said Tetsu Emori, a fund manager at Tokyo-based Astmax Co Ltd.
Still, the shutdown of the Enbridge pipeline might help ease a glut at the Cushing, Oklahoma, pricing point, majorly supplied with Canadian oil. That was reflected on Friday by the reduction of an unusual premium of October ICE Brent, which fell 38 cents to $77.09, over the US benchmark West Texas Intermediate (WTI).
Canada is the largest oil exporter to the US and Enbridge’s pipelines carry the lion’s share of that crude.
Brent premium shrinks
Brent posted its biggest premium to WTI since mid-May earlier this week at more than $3.50 a barrel, shrinking on Friday to about $2.35.
“As soon as there are signs of a continued recovery from US economic data or that oil inventories are falling, it should have a good impact on (US) crude prices,” Emori said.
Asian stocks rose to a four-month high on Friday as some investors were inspired by positive US and Japanese economic data to pick out bargains, with the shift to riskier assets weighing on the yen.
Despite the increase in overall US petroleum inventories last week, crude stockpiles dropped 1.85 million barrels to 359.9 million in the week to 3 September as imports declined and refineries processed more crude, the Energy Information Administration reported on Thursday.
“A decrease in crude inventories is psychologically a supportive factor,” Emori said.
Inventories at the key Cushing hub fell by 218,000 barrels to 35.54 million barrels.
The spread, or the discount of front-month WTI crude to the second month, shrank to about $1.05 on the Enbridge news from almost $1.80 a barrel earlier this week, flattening a market structure known as contango, where prompt oil is cheaper than future supplies.
Though the size of the Enbridge spill or the duration of the outage are not yet known, fire officials said the line was shut early in the afternoon and that the oil has been contained.
Line 6A, which carries light, medium and heavy crudes, as well as synthetic oil from northern Alberta’s oil sands, runs from Superior, Wisconsin, to Griffiths and supplies oil to refineries in the Chicago region, as well as to the storage hub at Cushing.
Thursday’s incident comes just six weeks after Enbridge was forced to shut down another smaller part of its Lakehead system, which the US government has not yet allowed to resume operations amid heightened scrutiny of spills after BP Plc’s Gulf of Mexico spill.
US distillate stocks fell 388,000 barrels last week, according to the EIA, against analyst expectations for a 600,000 barrel rise, while stocks of gasoline fell 243,000 barrels compared with forecasts for a larger draw of 900,000 barrels.
Storms are expected to cause losses of about 20 million more barrels of US crude oil production in the Gulf of Mexico before the Atlantic hurricane season ends on 30 November, the Energy Information Administration said Thursday.
Oil imports by China, the world’s second-largest petroleum user, rose 13% in August from a year earlier. China brought in 20.9 million tonnes of crude from abroad last month, and imports for the first eight months gained 22.6% to 157.87 million tonnes, the General Administration of Customs said on its website.
China’s National Bureau of Statistics will release its monthly suite of economic data including industrial production, consumer and producer prices and retail sales on Saturday, 11 September, at 0200 GMT.