Crude Sharply Higher as Keystone Pipeline Remains Closed

Jan WTI crude oil (CLF23) on Monday closed up +2.15 (+3.03%), and Jan RBOB gasoline (RBF23) closed up +2.49 (+1.21%).  

Crude oil and gasoline prices Monday moved sharply higher on concern about tighter U.S. crude supplies after TC Energy said the Keystone pipeline would remain shut down with no timeline for reopening.  The Keystone pipeline can carry more than 600,000 bpd of crude and links oil fields in Canada to Cushing, OK, and to refiners on the U.S. Gulf Coast.  The pipeline has been closed since last Thursday after a 14,000-barrel crude oil leak.

OPEC+ on December 4 decided to keep the group's crude production targets unchanged for January, in line with expectations.  OPEC crude production in November fell 1.05 million bpd to a 5-month low of 28.79 million bpd.

Concern about a delayed reopening of China's economy is bearish for energy demand and crude prices.  Covid cases are spreading rapidly in China after the country’s pandemic restrictions were unexpectedly eased last week.  Any new Covid restrictions would curb energy demand and delay the reopening of China's economy.

In a negative factor for crude oil prices, the EU and G-7 in early December agreed to a $60-a-barrel price cap on Russian crude oil.  The cap would prevent companies from providing shipping, insurance, and related services for Russian oil unless that oil is sold below the cap price.  However, Russian Urals grade crude oil is currently trading below $60 per barrel, which means that the cap will have no impact on curbing Russian oil exports.  

In a bullish factor, Vortexa reported Monday that the amount of crude stored on tankers that have been stationary for at least a week fell -3.1% w/w to 86.83 million bbls in the week ended December 9.

Last Wednesday's EIA report showed that (1) U.S. crude oil inventories as of December 2 were -8.4% below the seasonal 5-year average, (2) gasoline inventories were -2.7% below the seasonal 5-year average, and (3) distillate inventories were -7.8% below the 5-year seasonal average.  U.S. crude oil production in the week ended December 2 rose +0.8% w/w to a 2-1/2 year high of 12.2 million bpd, which is only 0.9 million bpd (-6.9%) below the Feb-2020 record-high of 13.1 million bpd.

Baker Hughes reported last Friday that active U.S. oil rigs in the week ended December 9 fell by -2 rigs to 625 rigs, falling back slightly from the 2-1/2 year high of 627 rigs on December 2.  U.S. active oil rigs have more than tripled from the 17-year low of 172 rigs seen in Aug 2020, signaling an increase in U.S. crude oil production capacity.
 

• Crude Soars as Keystone Pipeline Remains Shut
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• Crude Oil Gains as Putin Says Russia May Cut its Crude Production
• Crude Prices Fall on Concern about an Economic Slowdown