Oil prices dip after early session surge due to pipeline shutdown

Oil prices rose early in trading on Tuesday on a pipeline shutdown in the UK, however, prices dipped during US trading hours. Husky photo.

Oil prices rise to two-year high before losing gains

On Tuesday, oil prices surged to a two-year high after cracks found in the Forties pipeline shut down the United Kingdom’s largest North Sea crude pipeline, cutting into the supply of Brent crude.

The 406,000 barrels per day (b/d) pipeline was shutdown on Monday, the first unplanned outage for years.  The shutdown pushed Brent values higher, but prices retreated during US trading hours.

By 1:38 p.m. EST, Benchmark Brent was down $1.16 to $63.53/barrel after earlier in the session rising above $65/barrel for the first time since June 2015.  US WTI fell 76 cents to $57.23/barrel and the Canadian Crude Index dropped $36.31.

According to Reuters, Forties is a factor in the global oil market because the crude it usually transports sets the price of dated Brent, which is a benchmark used to price physical crude worldwide.  It also underpins Brent futures.

As a result of the shutdown, the WTI-Brent spread hit as much as $7, the highest its been in two years before falling back to $6.50.

The lower price for WTI has helped increase US crude exports.

However, “the rise in Brent is going to drive WTI up as opposed to WTI dragging Brent down,” Phil Flynn, analyst at Price Futures Group told Reuters.

Traders and analysts say the shutdown of the pipeline will likely cause significant delays in loading Forties crude cargoes, but “there are (still) going to be loads,” a trade source told Reuters.

The source added that without knowing the restart date, the number was hard to estimate.

US crude stock data will be released by the American Petroleum Institute on Tuesday afternoon and the US Energy Information Administration will release its data on Wednesday morning.

A poll by Reuters shows analysts expect crude inventories to fall by 3.8 million barrels, which would be the fourth straight week of declines.