Oil up third day in row, boosted by U.S. pipeline outage, cold and Fed

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By Barani Krishnan

AiVIF.com -- Oil prices rose for a third day in a row as traders looked beyond a big weekly build in U.S. crude inventories to focus instead on the shutdown of Canadian pipeline Keystone, which is vital to refiners in the country’s West Coast.

Expectations that the Federal Reserve will start its long-awaited pivot on monetary tightening by slowing rate hikes for the first time since March also boosted sentiment in oil, as it did in other risk assets.

Adding to the market’s upside were stronger demand outlooks for oil from producer group OPEC+ as well as the International Energy Agency, which oversees the interest of consumers, 

A rise in road and air traffic in China after a reopening of cities placed under coronavirus lockdowns also contributed to the fervor of an oil market emerging from its sharpest weekly loss in nine months.

“It’s going to be a cold stretch during Christmas as well, so this upside has some fundamental support too,” said John  Kilduff, founding partner at New York energy hedge fund Again Capital.

The result was a rally of 3% or more in U.K.-origin Brent oil and U.S. West Texas Intermediate, or WTI, crude for a second day in a row. That set the two benchmarks up about 9% on the week, recovering a third of last week’s plunge of almost 12%.

Brent crude was up $2.24, or 2.8%, trading at $82.92 by 13:00 ET (18:00 GMT). It rose about 6% in the past two sessions. The global crude benchmark fell $9.47, or 11% last week, hitting a low of $75.14 — a bottom not seen since Dec 23, 2021. 

WTI for delivery in January was up $2.30, or 3%, reaching $77.69. Like Brent, WTI rose a cumulative 6% in the past two sessions. The U.S. crude benchmark ended last week down $9.28, or 11%, making it its worst week since the week ended March 25. WTI’s session low for last week was $70.11 — a bottom not seen since Dec 21, 2021. 

This week’s rally in oil came amid the closure of the 622,000 barrel-per-day Keystone pipeline carrying Canadian heavy crude to the U.S. Gulf Coast of Mexico. 

Canada's TC Energy (NYSE:TRP) shut the pipeline on Wednesday after it was found to have leaked more than 14,000 barrels of oil in Kansas last week, in the largest U.S. oil spill in nearly a decade. No timeline has been given on how long it would take to clean up and restart the pipeline.

TC Energy said it has not yet determined the cause of the leak and was excavating around the pipeline. The outage is expected to shrink supplies at the Cushing, Oklahoma storage hub, delivery point for benchmark U.S. crude oil futures.

Risk appetite in oil got a further boost as traders expected the Fed to announce later on Wednesday an increase of 50 basis points for the central bank’s December rate decision — after four back-to-back jumbo hikes of 75 basis points from June through November.

On the demand outlook front, producer group OPEC+ said it expects oil demand to grow by 2.25 million barrels per day (bpd) over next year to 101.8M bpd, with potential upside from China, the world's top importer.

Paris-based oil consumers’ alliance IEA said it saw Chinese oil demand recovering next year after a 400,000 bpd contraction in 2022. The alliance raised its 2023 oil demand growth estimate to 1.7M bpd for a total of 101.6M bpd.

On the U.S. oil inventory front, crude stockpiles rose for the first time in five weeks as refiners slowed work last week after massively turning out fuel products ahead of the winter, data from the Energy Information Administration, or EIA, showed.

Crude inventories rose by 10.231M barrels during the week ended December 9, the EIA said in its Weekly Petroleum Status Report, after a cumulative draw of 26.86M barrels over five previous weeks.

Refineries operated at 92.2% of their operable capacity last week, versus 95.5% in the previous week to December 2, the EIA said.

In accordance with the crude build, the roll out in fuel products thinned.

Gasoline stockpiles rose by 4.496M barrels during the week to December 9, after a 5.32-million-barrel build the previous week. Gasoline is the top automobile fuel in the United States.

Inventories of distillates, meanwhile, rose by 1.364M barrels last week, compared with the rise of 6.159M the week before. Distillates are refined into diesel for trucks, buses, trains and ships as well as fuel for jets.

Arrivals of new fuel supplies in the marketplace were mixed, indicating uneven demand.

Supply of finished motor gasoline in the marketplace was at 8.255M barrels per day last week, down by 103,000 barrels per day.

Distillate fuel oil, meanwhile, saw a rise of 218,000 barrels per day to 3.768M barrels per day.

Kerosene-type jet fuel saw a build of 377,000 barrels per day, to reach 1.386M barrels daily.