Analysts and traders see an interruption of the major oil pipeline from Canada to the United States may reduce crude supply to two oil refineries and have an impact on stockpiles at a significant U.S. storage facility.
The Keystone pipeline, operated by TC Energy (TRP.TO), transports around 600,000 barrels of Canada’s crude each day to the United States. It was shut down late on Wednesday after a break released almost 14,000 barrels of crude into a Kansas creek trail, marking it the country’s biggest oil disaster in almost a decade.
The length of any potential disruption remains the key concern. A statement by Michael Tran, the director of management at RBC Capital Markets, claimed the longer the period will ultimately and likely result in tighter stocks in Cushing or heavier crude on the Gulf Coast.
The storage hub in Cushing, Oklahoma, where the line directly terminates, is currently around a third full and holding close to 24 million barrels.
AJ O’Donnell, a director at the pipeline investigator East Daley Capital, said if the disruption persists for longer than 10 days, Cushing storage could be reduced to almost the operating threshold of 20 million barrels.
Harshit Gupta of Arc Independent Research stated volumes in the 4th quarter will be significantly impacted because Keystone will likely restart at a pressure that is significantly lower than usual, at least initially.
Estimates by East Daley & data analytics company Wood Mackenzie, saw several pipelines connecting Canada and the U.S. that are nearly at capacity.
There is insufficient space to accept 600,000 barrels each day. Just not adequate pipe is available right now, as per O’Donnell.
Downstream from a crucial intersection in Steele City, Nebraska, wherein Keystone separates to go into Illinois, the leak in Kansas occurred. The other part of the line that was impacted by the leak won’t resume until regulators allow a restart, but that section of the line might.
These sources added that TC Energy plans to restart a pipeline portion that transports oil to Illinois on Saturday and another part that transports crude to Cushing on December 20. The pipeline’s reinstatement into service is being considered, according to TC Energy.
Volumes from Cushing to the Gulf have already decreased. Following the discovery of the leak, Wood Mackenzie calculates those volumes on TC Energy’s Marketlink pipelines, which runs from Cushing to Nederland, Texas, decreased by around 300,000 bpd to less than 500,000 bpd.
Refineries along the Gulf Coast, which can run out of heavy Canadian oil, can get their supplies from facilities offshore Louisiana as well as from Colombia, Mexico, and Ecuador.
On Thursday, U.S. raw crude oil grade rates were volatile. According to O’Donnell at East Daley, volatility is likely to remain as long as Keystone is not operational.
Although the market’s response on Friday was subdued, a protracted pipeline outage may cause a bottleneck in Alberta and depress prices for Canadian oil.
According to a broker in Calgary, the benchmark Canadian heavyweight grade, Western Canada Select (WCS), last traded for December delivery at a discount of $27.70 each barrel to the benchmark for U.S. oil futures. December WCS traded as little as $33.50 below U.S. crude on Thursday before ending the day at a $28.45 disadvantage.
On the other hand, the influence of European sanctions on Russian oil products and price limit measures has not yet produced concrete consequences, according to Saudi Arabia’s energy minister Prince Abdulaziz bin Salman, and its implementation is still not evident.
In an effort to restrict Moscow’s capacity to fund its conflict in Ukraine, the West implemented the Group of 7 price ceiling on Russian seaborne oil on December 5.
Russia has stated that it will not follow the rule, even if it means reducing its output.