Oil prices were mixed on Tuesday with Brent slightly down and US WTI up by over 1 per cent. The discount between the two futures contracts is now at a six-month low. Statoil photo.
Canadian oil prices up due to restricted capacity of Keystone pipeline
Oil prices were mixed as a stronger US dollar and profit-taking pushed down the value of Brent while US crude futures were steady as Canadian crude shipments to the US were curtailed due to reduced capacity on a key North American pipeline.
By 1:06 p.m. EST, Brent crude was down 15 cents to $65.52/barrel and US WTI rose by 59 cents to $62.14/barrel. The Canadian Crude Index was up 87 cents to $35.73.
At the beginning of 2018, Brent was trading at a premium to WTI of over $7/barrel. The reduced premium means northwest European importers will find WTI less attractive, especially as refiners undertake scheduled maintenance. Reuters reports premiums for local North Sea grades are at multi-year lows.
Reduced supply of crude from Canada to the US was caused by capacity restrictions on the Keystone pipeline due to a leak detected in December. The reductions are supporting WTI and logistical constraints in the US have caused prices for regional grades to diverge.
“Less crude oil is being transported from Canada to Cushing due to the restricted capacity of the Keystone pipeline. And for another, new pipeline capacities mean more crude oil is leaving Cushing,” Reuters reports Commerzbank analysts said in a note.
“Light Louisiana Sweet, the reference type for comparable oil on the U.S. Gulf Coast, even costs only $2 more than WTI. It therefore makes hardly any sense for refineries on the Gulf Coast to buy WTI from Cushing – indeed this would not be cost effective at all if the price gap narrowed any further.”
A month ago, Louisiana light sweet crude traded at a premium of nearly $5/barrel. It now trades at a premium of about $2/barrel.
Oil prices remain supported due to the OPEC supply cut pact which has helped reduce the global crude glut. Ayed Al Qahtani, head of research at OPEC, said at an industry conference on Tuesday that the excess of oil held in storage in the last year has fallen to 74 million barrels above the five-year average.
This compares to a surplus of about 340 million barrels in January of last year, said Qahtani.
“The latest discussions of the Joint Technical Committee of OPEC and non-OPEC nations concluded that the oil stocks are dissipating at a faster pace and the market will now rebalance between 2Q and 3Q,” Goldman Sachs said in a daily note.
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