Oil rises after last week’s plunge, as key pipeline stays shut

OIL advanced as a crucial North American pipeline remained shut, and the market digested the latest virus developments in China. 

West Texas Intermediate (WTI) rose towards US$72 a barrel, after falling 11 per cent last week. TC Energy is continuing recovery efforts at its shuttered Keystone pipeline – which links fields in Canada to refiners on the US Gulf Coast – and a date for a restart has not yet been set, it said on Sunday (Dec 11).

China has been moving away from its zero-Covid policy following a wave of protests, offering prospects for a demand revival in the world’s largest crude importer. However, a surge in cases is now spurring concern about consumption over the winter, with industry consultant FGE saying that the sudden lifting of restrictions could pose downside risks for oil demand.

Crude remains on track for its first back-to-back quarterly decline since mid-2019, as the demand outlook sours and thin liquidity exacerbates price swings into the year’s end. Investors are also weighing the fallout from the US$60-a-barrel price cap imposed by the Group of Seven and the European Union on Russian crude to punish Moscow for the Ukraine invasion.

The risk of a production cut from Russia could potentially add “fresh support to the market, ahead of what looks like a challenging 2023”, said Charu Chanana, market strategist at Saxo Capital Markets in Singapore. Supply worries may keep prices elevated despite the risk of lower demand, she said.

US Treasury Secretary Janet Yellen – one the cap’s architects – gave a qualified thumbs-up on the initiative, telling CBS’ 60 Minutes that the outcome was “so far, so good”. In the Middle East, Saudi Arabian Energy Minister Prince Abdulaziz bin Salman said that the impact remained uncertain.

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Oil falls on prospect of Keystone resumption, weakening demand

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Following the imposition of the price limit and related curbs, a backlog of tankers waiting to haul oil through Turkey’s vital shipping straits built up amid a dispute over insurance coverage. That now appears to be clearing, with a port agent tally on Sunday showing 19 tankers waiting to pass through the Bosphorus and Dardanelles straits, down from a total of 27 on Saturday.

Key spreads for WTI and Brent continue to hold in contango, indicating ample near-term supply. Brent’s prompt spread – the difference between the two nearest contracts – was 39 cents a barrel in contango, compared with US$1.58 a barrel in the opposite backwardated structure about a month ago. BLOOMBERG