Oil Prices Leap On Back Of Major Pipeline Leak
The combination of a major US pipeline leak of 795,000 litres and additional OPEC production cuts saw oil prices jump more than two per cent after a series of falls.
Brent crude contract prices for January closed at $US62.72, up 2.2 per cent, while West Texas Intermediate crude (WTI) rose 2.6 per cent to close at $US56.55 a barrel, helping prices recover some of their recent losses.
It comes after the commodity saw a retreat from its two-year high earlier this month, trending downwards from $US63.52 over the last fortnight due to increased US output and concerns Russia may not support the Organization of Petroleum Exporting Countries decision to reduce output in order to drive global supply levels.
The oil price has now seen a turnaround, as US output levels fell after the Keystone pipeline – which transports around 600,000 barrels of oil equivalent from Canada’s Albertan oil sands fields to the US – sprung a major leak, forcing a shutdown of the entire line. Approximately 5000 barrels of oil flowed from the leak in South Dakota.
The shutdown of the pipeline came only days ahead of a decision to increase oil flows by an additional 830,000 barrels through the network.
It is unknown when the pipeline will restart operations, however, it has been forecast to potentially begin transporting oil again as soon as Thursday.
This is a blow for the US, although a boon for global markets, as American output levels reached a record 9.65 million barrels per day, threatening the recent output cuts made by OPEC.
This price position has been further strengthened after Saudi Arabia’s energy minister Khalid Al-Falih said OPEC should announce an extension of its production cuts later this month, pushing the output reduction period beyond March 2018 into early 2019.
He said the market has been recalibrated by the reduction of output, which must continue.
“We need to do for a bit longer until we get to the inventory levels that we target, which is the five-year average,” Mr Al-Falih told Bloomberg.
He added that concerns over Russian participation in cuts have been minimised, stating that Russia is “fully on board” with resolutions.
The return to strength has been welcomed by the industry, as a new report finds that if global oil cuts fail to buoy commodity prices, there may be a wave of company collapses.
The S&P Global study, which examines the top trends for the energy sector next year expects general market stability punctuated by increasing mergers and acquisitions, but a broadly flat oil price. Any downwards movement from this already flat price may lead to a market crash.
Source: The Sydney Morning Herald – Oil Prices Leap On Back Of Major Pipeline Leak
