Oil rebounds as Canada flooding shuts pipelines

Rebound

Oil turned around in yesterday's session as traders started to contemplate the impact of the flood in Alberta and whether or not they were acting like feral pigs. Overnight China spoke and said there are no liquidity problems; there is nothing to see here, so keep on moving, don't stop. Fed speak and flood waters turned the market around and WTI crude led the way.

Bloomberg News reported that Enbridge Inc., the largest transporter of Canadian crude to the U.S., had yet to restart three pipelines in Alberta shut by a leak related to severe flooding and hasn't offered a timeline for service resumption. The company closed the 12-inch Line 37, which carries synthetic crude from Nexen Inc.'s Long Lake oil-sands complex to Cheecham, Alberta, after discovering a 750-barrel spill on June 22 north of there. The Athabasca and Waupisoo lines, which carry crude south from oil-sands projects in Alberta, were shut as a precaution.

This of course knocked out close to a million barrels a day of imports to the U.S. and more than likely will be replaced with WTI crude. On top of that, word from BP Whiting that they finally restarted that infamous crude unit that now can refine that heavier grade of Canadian crude, assuming they can get it. This will also draw on WTI and the fact that there was no real new news out of Syria except the escalation of violence caused the Brent vs. WTI spread to close to the lowest level in more than two years.

This is significant not only because of the short term disruptions but because of the steps we are taking to take advantage of our booming oil production.  Dow Jones Alison Sider, Dan Strumpf and Ben Lefebvre report that "New pipelines are beginning to carry a glut of domestic crude from the middle of the country to Texas' Gulf Coast, boosting the fortunes of the area's big refineries and further fueling a decline in oil imports.

“Magellan Midstream Partners' Longhorn pipeline began shipping oil from West Texas to Houston in April — the first of at least seven pipeline projects that could send as much as two million barrels a day  from oil-saturated choke points in Oklahoma and the interior of Texas to the largest concentration of refineries in the country. But domestic oil production is at such a high level that the Gulf Coast refineries won't be able to process all of the crude.  The pipelines, all set to come online by the end of next year, mark a new phase in the U.S. oil boom. Hydraulic fracturing has pushed U.S. oil output to its highest level in 17 years, but without adequate pipelines, much of the crude has been trapped at storage facilities, including domestically produced light, sweet crude at the massive storage hub in Cushing, Okla. because that Oklahoma crude is relatively stranded, its price is depressed compared with prices of oil stored in other parts of the U.S. and in Europe.”

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

 

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