Oil recovers on big U.S. crude stock drawdown

16 December, 2017, 05:59 | Author: Manuel Hopkins
  • Image INEOS

Ineos, which operates the Forties pipeline system in the North Sea, said Wednesday it was reviewing a range of options to fix cracks in a system that carries about 40 percent of total regional production, or about 450,000 barrels per day.

Despite the International Energy Agency sending profoundly mixed signals about the true state of the crude market, West Texas Intermediate on Thursday settled up 44 cents to $57.04 per barrel while Brent rose 87 cents to $63.31 per barrel. The oil pipeline will likely be shut down for two to three weeks, Ineos director Tom Crotty told Bloomberg TV on Tuesday. On Wednesday morning, its operator said it was still considering fix options and reiterated that any repairs would take several weeks.

Kilduff was referring to the shutdown by Ineos of the North Sea pipeline due to cracks that are expected to take anywhere from several weeks to a month to fix, thus potentially removing as much as much as 13 million barrels of crude from the market. Operator INEOS declared force majeure on Forties, the first such declaration in decades.

While the pipeline outage physically mostly affects the North Sea region, it is of global relevance as the crude it supplies is part of the supply that underpins the Brent price In the last 24 hours, a safety cordon around the damaged pipeline has been halved as a crack has not grown.

According to data compiled by Bloomberg, the Forties shutdown will remove an additional 5.5 million to 13 million barrels from the market by the time the pipeline is restarted.

Somalia's Shabaab kill 18 cops in academy bombing
The group, which is allied to al Qaeda, is waging an insurgency against the UN-backed government and its African Union allies. Female police officers were among those killed in the attack in which Al-Shabaab militant group has claimed responsibility.

At the same time, OPEC is upbeat about the massive drawdowns in recent months.

In the Wednesday report, the EIA said crude stocks fell 5.1 million barrels in the week ended December 8.

"The effect of Forties structure - it is super backwardated, so anyone who wants to place a cargo in the near term is penalized - super expensive, with this change in structure", one crude trader told Platts.

Traders are watching the spread, or difference, between Brent and WTI closely.

"Brent crude raced higher ... as news broke that the North Sea's Forties Pipeline system would have to be shut down for a "number of weeks" after a hairline crack was found in it", said Jeffrey Halley, senior market analyst at futures brokerage OANDA in Singapore.

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